Author Topic: Will this plan succeed in retirement?  (Read 6945 times)

joer1212

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Will this plan succeed in retirement?
« on: April 28, 2012, 09:41:12 AM »
When I retire at age 50, can I rollover my entire Roth 401k into a Roth IRA, then start making withdrawals by claiming the IRS 72(t) rule to avoid the 10% tax penalty?

Similarly, can I keep my 457b plan with my employer indefinitely after I retire at age 50, and start making withdrawals from it (which should be penalty-free, since it is a 457 plan)?

If I do both of the above, can I keep a part-time job (less than 40hrs), or sell my artwork? Or, will this trigger a 10% tax penalty in both, my Roth and 457b?

Lastly, if I start taking distributions from an annuity at the same time I am doing all of the above, will this affect anything?

FYI: I am 42 years-old, and I live in Brooklyn, New York.
I currently work for the MTA (New York City Transit) as a motorman.
I am counting on investing in the MTA deferred compensation plan until my portfolio is worth at least 500k. Then I will leave my job and live off the interest of my investments.
However, before I invest heavily in the deferred compensation plan, I need to know that I can start taking distributions from, both the Roth 401k, and the 457b plan penalty-free at around age 50. If I cannot, I will simply not participate in these plans, and instead invest my money on my own, after taxes.
I'm an artist, and I plan on selling my work to galleries or street fairs when I retire.
Also, while I don't plan on keeping any kind of job after I leave the MTA, I need to know that I can work a day or two (doing something easy like security) should it become necessary for any reason.

atelierk

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Re: Will this plan succeed in retirement?
« Reply #1 on: April 28, 2012, 01:16:39 PM »
I can't answer your question, but I've had a similar one regarding selling my art after "separating from service" at 55 (which I will do next month).

You might want to ask on the bWise Forums; there's one for 403(b) plans like I have and also 457 plans: http://board.403bwise.com/index.php?act=idx

Someone asked a question on the 403(b) forum about his wife getting a job with another employer (http://board.403bwise.com/index.php?showtopic=588) after separating at 55 and the answer makes me think free-lancing as an artist to bring in some extra income would be okay. Still, when my registration is approved I'm going to ask specifically about my art to make sure.

Physics

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Re: Will this plan succeed in retirement?
« Reply #2 on: April 28, 2012, 06:09:04 PM »
Couple of confusing things about your questions, but let's take it a step at a time.

#1: Are you sure you have a ROTH 401k, and not just a 401k?
#2: If it is a regular 401k, you will be subject to your regular income tax on the amount you roll over, so it wouldn't be a good idea to roll over 500k all at once.
#3: Once your money is in a Roth IRA, 72t does not apply to you, since you can remove all principle contributions from your Roth IRA, assuming the money has been in there for 5 or more years. 72t applies when it comes to making regular distributions early (before 59.5) from a regular IRA.

arebelspy

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Re: Will this plan succeed in retirement?
« Reply #3 on: April 28, 2012, 06:22:10 PM »
since you can remove all principle contributions from your Roth IRA, assuming the money has been in there for 5 or more years.

..or even if it hasn't been.
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Physics

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Re: Will this plan succeed in retirement?
« Reply #4 on: April 28, 2012, 08:31:48 PM »
true, there are many other qualifying conditions that allow you to remove principle from your Roth IRA.

joer1212

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Re: Will this plan succeed in retirement?
« Reply #5 on: April 29, 2012, 10:17:39 AM »
#1: Are you sure you have a ROTH 401k, and not just a 401k?

Yes, I have a ROTH 401k.
For 2012, the IRS allows only $17,000 a year to tax deferred contributions. It allows another $17,000 a year (for a total of $34,000) for after-tax contributions. So, I maxed-out, both my 457b plan (tax deferred) and my Roth 401k (after tax).
I wish I could have deferred all 34k. It would have probably put me in a lower tax bracket (15%). Alas, the IRS is hip to this trick.

1) So, you're saying that I can take out the principal (17k/yr. X 8= $136,000) from my Roth IRA tax-free and penalty-free?

2) I'm concerned about my 457b plan being hit with a 10% tax penalty if I take on part-time work after I leave the MTA, since the rules for this plan is that you must be retired in order to take distributions penalty-free. Does "retired" mean absolutely no work at all to the IRS, or is there an income limit?

arebelspy

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Re: Will this plan succeed in retirement?
« Reply #6 on: April 29, 2012, 12:20:44 PM »
1) Yes, absolutely, you can take the principal tax free, penalty free, any time.
2) No, you can take it any time after you sever employment with that company.  You pay taxes (like you would anytime you access it, even after age 59 1/2), but no penalties.  That's the beauty of a 457 over something like a 403.
We are two former teachers who accumulated a bunch of real estate, retired at 29, spent some time traveling the world full time and are now settled with three kids.
If you want to know more about us, or how we did that, or see lots of pictures, this Business Insider profile tells our story pretty well.
We (rarely) blog at AdventuringAlong.com. Check out our Now page to see what we're up to currently.

joer1212

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Re: Will this plan succeed in retirement?
« Reply #7 on: April 29, 2012, 10:32:19 PM »
2) No, you can take it any time after you sever employment with that company.  You pay taxes (like you would anytime you access it, even after age 59 1/2), but no penalties.  That's the beauty of a 457 over something like a 403.

I know that I can take distributions from my 457b without penalty as long as I'm retired, but what happens if after I retire from full-time work I take on part-time work? Will this cause the 10% penalty to kick in because, technically, I'm not retired?
I have the same concern if I engage in any money-making activity after I retire from my job at the MTA. For example, I'm an artist, and I would like to sell my paintings in street fairs after I retire. Will this be a problem?

arebelspy

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Re: Will this plan succeed in retirement?
« Reply #8 on: April 30, 2012, 02:53:54 AM »
2) No, you can take it any time after you sever employment with that company.  You pay taxes (like you would anytime you access it, even after age 59 1/2), but no penalties.  That's the beauty of a 457 over something like a 403.

I know that I can take distributions from my 457b without penalty as long as I'm retired, but what happens if after I retire from full-time work I take on part-time work? Will this cause the 10% penalty to kick in because, technically, I'm not retired?
I have the same concern if I engage in any money-making activity after I retire from my job at the MTA. For example, I'm an artist, and I would like to sell my paintings in street fairs after I retire. Will this be a problem?

I had the same question, but recently found out that as long as you are no longer with that company you started it with, you can access it penalty free, even if doing part time (even full time) work elsewhere.  This is my current understanding, although I admit I'm not 100% sure on it.  Information beyond basic info is hard to find on 457s in general.

Can anyone else confirm this?
We are two former teachers who accumulated a bunch of real estate, retired at 29, spent some time traveling the world full time and are now settled with three kids.
If you want to know more about us, or how we did that, or see lots of pictures, this Business Insider profile tells our story pretty well.
We (rarely) blog at AdventuringAlong.com. Check out our Now page to see what we're up to currently.

Physics

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Re: Will this plan succeed in retirement?
« Reply #9 on: May 01, 2012, 11:31:03 AM »
A reasonable article I just came across on _some_ of the complexities of the "5 year rule" and ROTH IRAs.

http://news.morningstar.com/articlenet/article.aspx?id=548325

arebelspy

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Re: Will this plan succeed in retirement?
« Reply #10 on: May 01, 2012, 12:26:24 PM »
Good article.

Also confirms what I said above.

Me:
1) Yes, absolutely, you can take the principal tax free, penalty free, any time.

Article:
Quote
Contributions to a Roth IRA can be withdrawn at any time and for any reason with no taxes or penalty.
We are two former teachers who accumulated a bunch of real estate, retired at 29, spent some time traveling the world full time and are now settled with three kids.
If you want to know more about us, or how we did that, or see lots of pictures, this Business Insider profile tells our story pretty well.
We (rarely) blog at AdventuringAlong.com. Check out our Now page to see what we're up to currently.

unitsinc

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Re: Will this plan succeed in retirement?
« Reply #11 on: May 01, 2012, 01:25:23 PM »

Article:
Quote
Contributions to a Roth IRA can be withdrawn at any time and for any reason with no taxes or penalty.

It is only the gains from a Roth IRA that would cause you to be penalized for early withdrawl, correct?

arebelspy

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Re: Will this plan succeed in retirement?
« Reply #12 on: May 01, 2012, 02:07:05 PM »

Article:
Quote
Contributions to a Roth IRA can be withdrawn at any time and for any reason with no taxes or penalty.

It is only the gains from a Roth IRA that would cause you to be penalized for early withdrawl, correct?

Correct.  And those are accessible as well under certain conditions.  Most conditions don't apply, but if you contribute 5k/yr for 10 years to a Roth each for yourself and your wife, you can access that 100k in contributions penalty free as a "bridge" to get you to the 59 and 1/2 t access the interest as well as other retirement accounts (which you can always 72t as well).
We are two former teachers who accumulated a bunch of real estate, retired at 29, spent some time traveling the world full time and are now settled with three kids.
If you want to know more about us, or how we did that, or see lots of pictures, this Business Insider profile tells our story pretty well.
We (rarely) blog at AdventuringAlong.com. Check out our Now page to see what we're up to currently.