Author Topic: 401k distributions prior to 59 1/2  (Read 4619 times)

outtaheresoon

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401k distributions prior to 59 1/2
« on: April 21, 2015, 11:20:32 AM »
So the plan is to RE at age 55 (5 years from now) or sooner if the planets align....as of now all of our savings are in our 401k plans - what is the best/most tax advantageous way to start withdrawing 401k/IRA funds prior to 59 1/2?  Wondering if we should start funding other vehicles now until we retire and use that $$ before tapping 401k's.

seattlecyclone

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Re: 401k distributions prior to 59 1/2
« Reply #1 on: April 21, 2015, 11:46:20 AM »
If you leave your job after you turn 55, you can take money out of your 401(k) (but not your IRA) without penalty. That might be a good option for you if the planets don't align. Otherwise there's the Roth pipeline or SEPP distributions to help you get earlier penalty-free access to that money.

https://seattlecyclone.com/accessing-your-retirement-accounts-early-yes-you-can/

Whether you should abandon contributions to pre-tax accounts depends on a lot of factors. If your tax bracket now is at least 10% higher than you expect it to be during your retirement, you may be better off simply accepting some early withdrawal penalties in retirement instead of paying tax now on money that you then put into a Roth account or taxable account.

boulder3381

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Re: 401k distributions prior to 59 1/2
« Reply #2 on: April 21, 2015, 01:32:18 PM »
Consider reading about "Roth Conversion Ladder"


tarheeldan

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Re: 401k distributions prior to 59 1/2
« Reply #3 on: April 21, 2015, 02:06:50 PM »
Consider reading about "Roth Conversion Ladder"

Yep. You could save 5 years worth of expenses in a combination of a Roth and taxable accounts now. Then when you RE in 5 years you have that to live off of while your first Roth conversion marinates. You'd convert your 401k to Traditional IRA and then convert 1 year of expenses to Roth IRA each year.

skyrefuge

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Re: 401k distributions prior to 59 1/2
« Reply #4 on: April 21, 2015, 02:20:40 PM »
Consider reading about "Roth Conversion Ladder"

Consider reading the posts before yours, or replacing your link with....oh, where did I put seattlecyclone's link now...oh, there it is, ONE POST ABOVE YOURS.

https://seattlecyclone.com/accessing-your-retirement-accounts-early-yes-you-can/

jlcollinsnh is great and everything, but seattlecyclone's link is currently the gold-standard for answering the "how do I access my retirement accounts before 59.5?" question. It's much clearer than any other source on the Internet because it restricts itself to answering that exact question.

Eric

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Re: 401k distributions prior to 59 1/2
« Reply #5 on: April 21, 2015, 03:33:54 PM »
That was a little harsh skyrefuge.  It's not like he was advocating a strict dividend only portfolio here.

skyrefuge

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Re: 401k distributions prior to 59 1/2
« Reply #6 on: April 21, 2015, 04:34:50 PM »
That was a little harsh skyrefuge.  It's not like he was advocating a strict dividend only portfolio here.

haha, true! But hey, if I was brooklynguy, I would have suggested banishment for such an offense, so just a little ALL-CAPS shouting is letting him off easy.

And really, I just want to pimp out seattlecyclone's superior summary; the chance to take a swing at a non-reader was just a bonus I couldn't avoid!

boulder3381

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Re: 401k distributions prior to 59 1/2
« Reply #7 on: April 21, 2015, 04:37:25 PM »
Luckily,  I believe learning comes best by reading various sources on a topic.  So Skyrefuge, I didn't hear you trying to burn me.  I thought you were encouraging.  All a matter of perspective.  Like the two separate pieces trying to articulate a concept that not everyone is familiar.


ps. I read the post before my earlier comment.
« Last Edit: April 21, 2015, 04:44:19 PM by boulder3381 »

forummm

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Re: 401k distributions prior to 59 1/2
« Reply #8 on: April 21, 2015, 06:19:18 PM »
That was a little harsh skyrefuge.  It's not like he was advocating a strict dividend only portfolio here.

haha, true! But hey, if I was brooklynguy, I would have suggested banishment for such an offense, so just a little ALL-CAPS shouting is letting him off easy.

And really, I just want to pimp out seattlecyclone's superior summary; the chance to take a swing at a non-reader was just a bonus I couldn't avoid!

Come on guys. That's just your survivorship bias talking.

brooklynguy

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Re: 401k distributions prior to 59 1/2
« Reply #9 on: April 22, 2015, 08:53:01 AM »
But hey, if I was brooklynguy, I would have suggested banishment for such an offense, so just a little ALL-CAPS shouting is letting him off easy.

Banishment is the appropriate punishment for linking to an identical source.  For merely linking to an inferior source, I'd say a tarring-and-feathering would be in order.

Quote
And really, I just want to pimp out seattlecyclone's superior summary

In all seriousness, I really can't get over how great this community is.  We all basically get to crowdsource our own early retirements, and collectively create and fine-tune our own custom-tailored resources for doing so.  We're building our own GPS-enabled navigation systems to traverse the road to early retirement, unlike the early-retirement pioneers of yesteryear (before, like, 2007?) who not only had to build from scratch the roadway infrastructure we're now using but also had to self-navigate with the kind of uncooperative folding paper maps our grandparents used to have to force into submission over their laps while trying to keep one eye on the road (except, in this case, they were building the road underneath them as they drove over it).

Ok, I lost control of the reins on that metaphor, but anyway, thanks to everyone here for your contributions, and thanks to the giants who came before us on whose shoulders we now stand!

forummm

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Re: 401k distributions prior to 59 1/2
« Reply #10 on: April 22, 2015, 02:03:33 PM »
In all seriousness, I really can't get over how great this community is.  We all basically get to crowdsource our own early retirements, and collectively create and fine-tune our own custom-tailored resources for doing so.  We're building our own GPS-enabled navigation systems to traverse the road to early retirement, unlike the early-retirement pioneers of yesteryear (before, like, 2007?) who not only had to build from scratch the roadway infrastructure we're now using but also had to self-navigate with the kind of uncooperative folding paper maps our grandparents used to have to force into submission over their laps while trying to keep one eye on the road (except, in this case, they were building the road underneath them as they drove over it).

Ok, I lost control of the reins on that metaphor, but anyway, thanks to everyone here for your contributions, and thanks to the giants who came before us on whose shoulders we now stand!

Hey, we're all just single-celled organisms over here, but when we combine we create a giant super-creature, capable of wrestling our destinies from the tyranny of cubicledom.

Gone Fishing

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Re: 401k distributions prior to 59 1/2
« Reply #11 on: April 22, 2015, 02:58:17 PM »
So to get this back on track...How about a few more details?

Such as:

You say "we", are you both working?  Do you both have access to a 401(k)?  Are you the same age?

Exactly what you have in your:
Current company 401(k)
Any previous employer's 401(k)
Any ROTH IRA accounts
Any Traditional IRA accounts

Simply put, all you need is enough in your current employer's 401(k) plan to get you from 55 to 59.5.  If you can get there, no fancy ladders, conversions, or SEPPs are needed.  With make-up contributions and two plans (if you have them) you could probably get there from scratch.