Early Retirement Savings

[trampslady]

This was prompted by comments made on the current retirement thread. It's true that retirment savings plans are severely taxed if participants withdraw earlier than 59 1/2. That said, what suggestions do you folks have for profitable savings that can be used for living expenses should one retire early?

 

[Feralpeg]

This was prompted by comments made on the current retirement thread. It's true that retirment savings plans are severely taxed if participants withdraw earlier than 59 1/2. That said, what suggestions do you folks have for profitable savings that can be used for living expenses should one retire early?

If you withdraw early from a retirement vehicle, you will pay a ten percent penalty. If you plan on early retirement, talk to a financial advisor who can suggest non-retirement vehicles that will not carry an early withdrawal penalty.

 

[Cheshire Figment]

Money withdrawn from a retirement plan prior to age 59.5 is subject to a 10% penalty unless "distributions after separation from service that are part of a series of substantially equal periodic payments over the life of the participant or the jpint lives of the participant and the beneficiary", which means if it is converted to an annuity there is no penalty.

There are a few other exceptions but I don't want to get too technical.

Mike (CPA Retired)

 

[DisneyBill]

If you've contributed to a Roth IRA throughout a working lifetime, you can take out original contributions to the Roth IRA without penalty anytime after, I think, the original contribution has been invested for 5 years. So, if you've invested say 3k for a 30 year period from age 25 to 55, you can at least get 90k out early without penalty. Nor taxes in the case of a Roth because the money was already taxed when you earned it before you invested in the Roth.

 

[imsayin]

If you've contributed to a Roth IRA throughout a working lifetime, you can take out original contributions to the Roth IRA without penalty anytime after, I think, the original contribution has been invested for 5 years. So, if you've invested say 3k for a 30 year period from age 25 to 55, you can at least get 90k out early without penalty. Nor taxes in the case of a Roth because the money was already taxed when you earned it before you invested in the Roth.

Sorry, I think you have to be 59.5 years to avoid penalties on withdrawals (in most cases).

 

[C.Ann]

If you've contributed to a Roth IRA throughout a working lifetime, you can take out original contributions to the Roth IRA without penalty anytime after, I think, the original contribution has been invested for 5 years. So, if you've invested say 3k for a 30 year period from age 25 to 55, you can at least get 90k out early without penalty. Nor taxes in the case of a Roth because the money was already taxed when you earned it before you invested in the Roth.

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Unless it has changed, to be fully eligible to contribute to a Roth IRA your adjusted gross income must be $150,000 or less if you're married and $95,000 if you're single.. You can contribute past the traditional IRA age of 70 and 1/2 or even leave it there for the rest of your life without making any deductions.. You can't deduct the contributions to the Roth, but the distributions are tax-free IF you leave the money in the account for at least 5 years after making the initial contribution and you're 59 and 1/2 BEFORE you TAKE any money out.. I don't know if there are any "exceptions" to that rule (or if guidelines have changed), but the last that I knew the info I've posted here is accurate..

 

[Kramer]

Sorry, I think you have to be 59.5 years to avoid penalties on withdrawals (in most cases).

True in most cases, but not with a Roth IRA. As earlier stated, you may withdraw your contributions without penalty or tax.

 

[CarolMN]

deleted

 

[C.Ann]

True in most cases, but not with a Roth IRA. As earlier stated, you may withdraw your contributions without penalty or tax.

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When did they change that? Haven't really looked at it since '99.. Time to do some more research..

 

[trampslady]

Cheshire Figment, someone once mentioned this "thing" to me once. What's the tax code/reference for this? Essentially, you can earmark specific amounts (same every year) to be deducted over a period of time without penalty? Something like that? Sorry, you're talking to a complete novice!

 

[NancyIL]

I think the OP is asking how to retire early and live on money other than what's in a retirement account. Well...assuming you have maxed out contributions to retirement accounts and put additional savings into CD's or mutual funds over the years...I guess THAT is what you tap for living expenses! If your house has greatly appreciated in value, you could sell it and downsize. That assumes that you can afford to buy something else in the same area, or perhaps move to a less expensive part of the country.

I'm 3.5 years older than my DH, so I can start withdrawing retirement funds a few years before he can! Geez...that's in only TEN years!!!

 

[Cheshire Figment]

Cheshire Figment, someone once mentioned this "thing" to me once. What's the tax code/reference for this? Essentially, you can earmark specific amounts (same every year) to be deducted over a period of time without penalty? Something like that? Sorry, you're talking to a complete novice!

My current source was Section 2157 of the 2005 Master Tax Guide from Commerce Clearing House. If you go to www.irs.gov and look up Form 5329 and the Instructions for Form 5329 you will find basically the same information.

 

[C.Ann]

My current source was Section 2157 of the 2005 Master Tax Guide from Commerce Clearing House. If you go to www.irs.gov and look up Form 5329 and the Instructions for Form 5329 you will find basically the same information.

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So there is still a penalty unless certain exceptions apply.. I didn't think it would have changed all that much..

 

[MickeyMickey]

You can take out the money you put in a ROTH IRA before 59 1/2 just no earnings. No taxes or penalties apply

 

[DMRick]

Roth is money put in that has already had the tax taken out. As someone else stated a couple times, you can take that part out if you wish at any time (the amount you put in, your contribution). You can take out the interest and capital gains as long as you are at least 59 1/2 and the earnings have been in for at least five years.

 

[DisneyBill]

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When did they change that? Haven't really looked at it since '99.. Time to do some more research..

No changes, always been that way with the Roth.

 

[Shenzi]

If you terminate employment when you are age 55 or older, you may withdrawal funds from your employer's retirement plan prior to age 59.5 without incurring the 10% penalty.

It's very important to note that you must be at least 55 years old on the date you terminate employment.

I administer employer-sponsored retirement plans for a living.

 

[C.Ann]

No changes, always been that way with the Roth.

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I was under the assumption that the poster was referring to more than just the original contribution amounts or one of the other exception rules..

 

[DMRick]

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I was under the assumption that the poster was referring to more than just the original contribution amounts or one of the other exception rules..

I wouldn't suggest anyone empty their retirement savings right off the bat in any case. I went back and looked, and I don't know that anyone mentioned how much, just a general question about retirement funds. But I'll admit, I didn't look that good. For those who early retire, taking your own contributions out, hopefully will get you over to the 59 1/2 age.

 

[C.Ann]

I wouldn't suggest anyone empty their retirement savings right off the bat in any case.

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Nor would I.. Kind of defeats the whole purpose, doesn't it?