The Money Mustache Community

Learning, Sharing, and Teaching => Ask a Mustachian => Topic started by: Cynglen on December 28, 2013, 12:48:50 PM

Title: Early Retirement fees in 401k/IRA
Post by: Cynglen on December 28, 2013, 12:48:50 PM
Hello Everyone,

I'm brand new here and getting as deep into the Mustachian way of life as I can.  I'm 22, and hoping to be somewhere close to retiring by 40 (not sure how ambitious that is, but I'm entering the Engineering field in about a year and expect good pay).  Right now, I'm looking into the various retirement accounts available, but one thing has come up that I'd like to ask you all about.

If you retire before age 60, what do you do about those early-withdrawal fees on 401(k)s and IRAs?  The number I'm seeing is 10% penalty for taking money out for anything other than a specific list of reasons.

So are those penalties just a fact of life if you retire early with those fancy accounts?  One alternative I imagine is just investing with a regular account that lets you withdraw anytime without fees, but then you loose the tax benefits of retirement accounts.
Title: Re: Early Retirement fees in 401k/IRA
Post by: Joel on December 28, 2013, 12:58:26 PM
Search for back door Roth conversions. You can withdraw your Roth contributions after five years
Title: Re: Early Retirement fees in 401k/IRA
Post by: Frankies Girl on December 28, 2013, 01:00:42 PM
Nope. No fees, even if you retire really, really early.

There's ways to transfer funds (Roth Pipeline, SEPP, 72t distributions) that basically mean you can convert a 401K into a money funnel with no early withdrawal penalties, and most of the time you'll be in a lower tax bracket if you're retired, so low/no taxes either...

The thing is, you also have things you can contribute to now (Roth IRA, taxable accounts) that can be your early stage one money, and then consider the 401K your old (stage two) money, and you'll be fine.

Mad FIentist is a super resource on figuring out how to work the accounts:
http://www.madfientist.com/

Title: Re: Early Retirement fees in 401k/IRA
Post by: Eric on December 28, 2013, 02:16:42 PM
You should read this post

http://www.mrmoneymustache.com/2011/11/11/how-much-is-too-much-in-your-401k/
Title: Re: Early Retirement fees in 401k/IRA
Post by: paul9 on December 28, 2013, 03:22:09 PM
Hello Everyone,

I'm brand new here and getting as deep into the Mustachian way of life as I can.  I'm 22, and hoping to be somewhere close to retiring by 40 (not sure how ambitious that is, but I'm entering the Engineering field in about a year and expect good pay, this (http://www.losangelespersonalinjurylawyers.co) is something that we have talked about before.).  Right now, I'm looking into the various retirement accounts available, but one thing has come up that I'd like to ask you all about.

If you retire before age 60, what do you do about those early-withdrawal fees on 401(k)s and IRAs?  The number I'm seeing is 10% penalty for taking money out for anything other than a specific list of reasons.

So are those penalties just a fact of life if you retire early with those fancy accounts?  One alternative I imagine is just investing with a regular account that lets you withdraw anytime without fees, but then you loose the tax benefits of retirement accounts.

Very informative.  Thanks for posting.