Interesting new retirement strategy-Get fired Withdraw your money Penalty Free?

[boarder42]

New obama budget has another loop hole. 

http://www.cnbc.com/id/102454775

Discuss

[ender]

Stuff like this is so good for those seeking fire and so bad for everyone else..

[boarder42]

So if you happen to be ready to FIRE and your company hits a down turn..  Offer to be let go ... have to read the full law to understand the rules. 

and i dont know how unemployment actually works if someone could ring in on that.  Can i draw unemployment and money from my taxable accounts for 26 weeks to get me by and then start drawing from my retirement while still collecting unemployment? 

Also it says you would have to withdraw in the year you receive it or the year following... so does that mean i cant withdraw indefinitely?

[solon]

It's too bad 'fire' has two, almost opposite, meanings. I had a hard time figuring out which one we talking about here.

[boarder42]

It really works both ways in that sentence. 

Even if its only for 2 years it allows you to put more away in to tax deferred accounts rather than putting in in taxable and Roth so you can bridge the 5 year Roth Pipeline start. 

[boarder42]

And also by offering to be let go you're saving someone else's job who would have been fired.  assuming that wasnt you already.  If you want some sort of justification

[Melf]

I read the article to say that you would be eligible to make this withdrawal from your retirement account AFTER having drawn unemployment benefits for 26 weeks.  I wasn't clear if it would be just a one time thing or if it could be multiple withdrawals up to the 50K limit depending on your account balance.  I assume the withdrawal would be taxed at your normal rate but not include the 10% penalty.

[boarder42]

Correct that's how i understand the 26 week part but there is a sentence that says "Under the proposal, you would have to withdraw retirement funds either in the year when you received unemployment compensation or the following year."  Do you interpret that as you MUST start withdraws in one of those 2 years to be eligible.  The other issue is can you do it for 5 years... then just declare yourself retired so you dont have to worry about taxable funds.

[johnny847]

I read the article to say that you would be eligible to make this withdrawal from your retirement account AFTER having drawn unemployment benefits for 26 weeks.  I wasn't clear if it would be just a one time thing or if it could be multiple withdrawals up to the 50K limit depending on your account balance.  I assume the withdrawal would be taxed at your normal rate but not include the 10% penalty.

Well it's a little confusing because it says

The provision would allow those who've received unemployment compensation for more than 26 weeks to withdraw up to $50,000 per year from their IRAs and employer-sponsored retirement plans.

[Emphasis mine]

But at the same time, the following implies you can only do it once.

Under the proposal, you would have to withdraw retirement funds either in the year when you received unemployment compensation or the following year.

But even if you can only do it once, $50k would be good for at least 1 year of expenses for a Mustachian, and probably closer to two years, depending on family size, cost of living, etc. So that cuts down the 5 years of living expenses requirement for the Roth pipeline down to no more than four.

[MustachianAccountant]

But even if you can only do it once, $50k would be good for at least 1 year of expenses for a Mustachian, and probably closer to two years, depending on family size, cost of living, etc. So that cuts down the 5 years of living expenses requirement for the Roth pipeline down to no more than four.

Hmmmm....
For a Mustachian, it would be more like "at least two years, probably more."

[MustachianAccountant]

Also worth noting:
A budget hasn't been passed in several years, so don't hold your breath on this one.

[dragoncar]

Hell, they should just get rid of the 10% penalty for everyone.  Suddenly tax revenue is up, the budget is balanced... prez looks like a genius.

[johnny847]

But even if you can only do it once, $50k would be good for at least 1 year of expenses for a Mustachian, and probably closer to two years, depending on family size, cost of living, etc. So that cuts down the 5 years of living expenses requirement for the Roth pipeline down to no more than four.

Hmmmm....
For a Mustachian, it would be more like "at least two years, probably more."

*shrug* You have to remember that there's taxes to pay on the $50k. And also, what about a Mustachian family of five living in say NYC? SF? I didn't want to make too many assumptions.

But the point is, it cuts down on the 5 years of living expenses requirement.

[Mississippi Mudstache]

But even if you can only do it once, $50k would be good for at least 1 year of expenses for a Mustachian, and probably closer to two years, depending on family size, cost of living, etc. So that cuts down the 5 years of living expenses requirement for the Roth pipeline down to no more than four.

Hmmmm....
For a Mustachian, it would be more like "at least two years, probably more."

I wouldn't go that far. If said Mustachian chose to invest rather than pay off a mortgage - or rent, for that matter - then they wouldn't necessarily be able to live on $25,000/year. Personally, I rent for $900/mo and pay about $1000/mo in medical bills for my disabled son, so it's not realistic to assume that I should be able to live off of the same nominal amount of money that MMM does, even though the remainder of our budget is lower than his, and we have two children, not one.

[MustachianAccountant]

But even if you can only do it once, $50k would be good for at least 1 year of expenses for a Mustachian, and probably closer to two years, depending on family size, cost of living, etc. So that cuts down the 5 years of living expenses requirement for the Roth pipeline down to no more than four.

Hmmmm....
For a Mustachian, it would be more like "at least two years, probably more."

*shrug* You have to remember that there's taxes to pay on the $50k. And also, what about a Mustachian family of five living in say NYC? SF? I didn't want to make too many assumptions.

But the point is, it cuts down on the 5 years of living expenses requirement.

I assume that most people's FIRE plans include a move to a low COL area, if they don't already live in one. Otherwise, you have to work even more years just to stay in your high COL area... which doesn't make rational sense.

But you're right in your basic point - it would cut down on the 5 years.

[boarder42]

Yes but to draw unemployment you would also have to get laid off which typically means a down market so you're first couple fire years could ve a bad market. Which is not good

[MrMoogle]

Yes but to draw unemployment you would also have to get laid off which typically means a down market so you're first couple fire years could ve a bad market. Which is not good

Or do contract work.  When the contract expires, you can then get unemployment (in most states at least).  You don't need to be fired or laid off.

My problem is getting unemployment for 26 weeks takes work, at least in Alabama.  You have to apply to jobs you're qualified each week, and if you ever get an offer, you can no longer receive benefits.