(another way to) Access Retirement Money BEFORE 59–1/2 to Fund Your Tax-free Retirement

Summary

The website content discusses methods for accessing retirement funds before the age of 59–1/2 without incurring a penalty, including the use of a 72t distribution and the Age 55 Rule.

Abstract

The article provides insights into strategies for early retirement planning, specifically focusing on accessing retirement funds prior to the standard age of 59–1/2. It introduces the concept of a 72t distribution, which allows for penalty-free early withdrawals from accounts like 401k's, IRA's, and 403b's, with the caveat that distributions must continue until age 59–1/2 or for a minimum of five years, whichever is longer. Additionally, the Age 55 Rule is presented as an option for those aged 55 or older to withdraw from certain retirement plans without the usual 10% penalty, though with a 20% withholding tax. The article suggests that these strategies can be part of a broader tax-free retirement plan, which involves spending down taxable assets to eventually collect social security tax-free.

Opinions

The author views the 72t distribution as an interesting and useful trick within the IRS tax code for early retirement planning.
The requirement to continue 72t distributions once started is seen as a potential drawback, emphasizing the commitment involved.
The Age 55 Rule is presented as a beneficial option for those needing income for a few years to bridge the gap to retirement, particularly for individuals around the age of 57.
The article suggests that using these methods can be advantageous as part of a tax-free retirement strategy, allowing for tax-free social security collection and strategic spending down of taxable assets.
The author encourages readers to engage further by connecting with them and accessing additional resources provided.

(another way to) Access Retirement Money BEFORE 59–1/2 to Fund Your Tax-free Retirement

(don’t forget to checkout the video too)

For people seeking an early retirement finding sources of income that aren’t penalized, can be a bit of a problem.

In a recent video, I talked about a 72t which is an interesting (and useful) little trick buried in the IRS tax code that allows for early withdrawals from retirement accounts…

With a 72t you can take money out 401k’s, IRA’s, 403b’s early, WITHOUT the 10% penalty! 😏

But, there is one stipulation that you might not like (or need)…

It’s that once you start a 72t you have to continue to take distributions (NO MATTER WHAT) until you hit 59–1/2 or until 5 years have passed…

Whichever is LONGER‼️

So what if you just need additional income for a couple of years to bridge the gap to retirement⁉️

This is where the Age 55 Rule comes into play (now these are subject to a 20% withholding, but they were going to be taxable anyways, so it’s not the end of the world).

The Age 55 Rule allows you to pull money out of 401k’s, 403b’s, TSP’s, and other qualified retirement plans early (sorry, not IRA’s), to bridge the gap until the rest of your money is available penalty-free.

So if you’re 57 and need 2–1/2 years worth of income before you start taking retirement money, this can be a good option.

This can also be part of a tax-free retirement strategy where you spend down some of your taxable assets in the same manner as a Roth conversion, so that you can collect social security tax-free in retirement, along with your other retirement income.

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To your success,

Matt