Originally Posted by mrWinter
Perhaps worth putting greater emphasis on: ROTH contributions
can be withdrawn early, not earnings.
So to summarize there are four main options (feel free anyone to add more) for pulling money from retirement accounts prior to 59.5:
- rule of 55 (can withdrawal from company plan if you retire from that same company the year you turn 55 or later)
- withdrawal any Roth contributions, but not earnings
- 72T SEPP (substantially equal periodic payments)
- withdrawal without any of the above and eat a 10% penalty
Possibly worth nothing depending on your age, if you run some numbers you may see that it's possibly better to invest in 401k for a long time and eat the 10% penalty than it is to invest after tax. The two competing values are the capitol gains tax on earnings which you pay in the after tax account vs. 10% tax on entirety of withdrawal. After a long enough period the earnings may be big enough compared to contributions that 10% of total is less than 15% (or more depending on bracket) of earnings. It's also possible that capital gains will be taxed at higher rates in the future (perhaps as normal income), but who knows I guess.
Just one issue some people might find themselves in... like I do.
If you have a ROTH 401k. When you turn 55 (assuming you are retiring then) you must first roll over your ROTH 401k to a ROTH IRA, before you attempt to withdraw your personal contributions.
From a ROTH 401k (rule of 55), you will get taxed some amount on the growth. They will not let you just take out your own personal contributions. Once that money gets to a ROTH IRA, you can take out just your personal contributions first with no tax or penalties at all.
Provided you have enough personal contributions to make it to 59.5, at that time the entire ROTH IRA is tax and penalty free.
This is what I am intending to do...