401(k)/403(b) and RE

[WanderALot]

Hello,

I've been a lurking here for a short time and have a question. First a little introduction:

Me: 30, Engineer, enjoys work
Wife: 29, Teacher, LOVES work

Goal: Semi retire (consult/work part time) at 35. Wife thinks she'll continue working fulltime (which for her still means she gets 3 months off a year not including holidays). We'll probably start having kids in a little over a year. And we both live for traveling.

Looking at our overall portfolio, we have most of our assets in IRAs/401(k)s. My wife has a 403(b) which we're thinking about contributing to. The only reason we haven't already contributed to it was because it used to only have annuities in it with high expenses (!)

Now for the question! I'm concerned about having so much of our assets in retirement vehicles which have penalties for early withdrawal. How do the people who've retired before "normal" retirement age handle this? Do you guys just bite the bullet and pay the penalties?? I know that there are certain cases like higher education for which the IRS allows penalty free withdrawals, but I don't expect to qualify for those events for a long time.

I don't expect to be withdrawing gobs of money, but just curious as to want others do.

Thanks.

[flipstress]

Hi, I'm not retired yet, but I know there is something called the 72(t) section of the IRC, the exception to the 10% penalty tax for withdrawals from IRA accounts taken prior to the age of 59.5.

I believe you'll have to rollover your 401(k) funds to an IRA account and then take early distributions based on the guidelines of 72(t), and you won't be paying penalties.

Here's a website dedicated to it:
http://www.72t.net *
Click the "72t Early Distributions".

I'm sure the retired folks here will give you more info on this.

[Nords]

... has a loophole allowing you to withdraw some funds early.

Roth IRAs also have numerous early-withdrawal exceptions.

Most of us fund our tax-deferred/free plans first, reach the limits, then continue to put additional money into taxed investments. In retirement, ideally the taxable investments are drawn down first to allow the other accounts to continue their tax-free compounding.

So very few of us make early withdrawals. And I can't remember EVER reading about someone on this board paying a penalty.