Even for those who might love their work, the thought of retiring early can seem awfully appealing\u2014and awfully tempting. Say you were to retire at the age of 55, instead of waiting until you are in your 60s. You\u2019d have that much more time for travel, for golf, for spending time with family\u2014for doing whatever it is you dream of doing once your working life is over.<\/p>\n
The happy news for those with a 401(k) is that there is a provision for retiring at 55\u2014and it\u2019s called, appropriately enough, the Rule of 55. However, not just anyone can up and decide to retire at this early stage. It\u2019s important to know what the rules actually are\u2014and the penalties.<\/p>\n
Normally, of course, the 401(k) holder has to wait until age 59 before he or she may begin withdrawing funds without any kind of a penalty. By following the Rule of 55, you\u2019re allowed to withdraw early while avoiding those penalties\u2014but you\u2019ve got to meet the right criteria:<\/p>\n
First, the rule applies only for those who leave their job in the calendar year in which they turn 55, or later. This might mean you retire or it might mean you\u2019re fired or laid off, and that\u2019s okay\u2014but it has to be in the year of your 55th birthday.<\/p>\n
Additionally, you can only take money from the 401(k) plan you had with your last employer. You may still have money in a 401(k) from a previous employer, but you\u2019ll have to leave that money where it is until you hit 59\u2014or else incur a penalty.<\/p>\n
By the way, if you\u2019re wondering what the early withdrawal penalty is, it\u2019s 10 percent\u2014which is pretty steep, and certainly not something anyone wants to have to pay just because he or she didn\u2019t understand the early withdrawal rules!<\/p>\n
There\u2019s actually an even bigger concern here, which is simply this: Many 401(k) plans\u2014a little less than half of them\u2014prohibit installation payments or period withdrawals. In other words, they force you to withdraw a lump sum of your money. Not only will the taxes on this be potentially outrageous, just depending on how much you actually have to withdraw, but it also empties your account, prohibiting any further investment growth.<\/p>\n
One oft-proposed solution is to roll the 401(k) balance into an IRA\u2014and that makes sense if you are waiting until age 59 to retire. The IRA doesn\u2019t allow for penalty-free withdrawals at 55, though, so what\u2019s an account-holder to do?<\/p>\n
One suggestion: Annuitize your IRA withdrawals. You can withdraw your money penalty-free if you set up a withdrawal schedule that will mean taking out substantively equal, periodic payments over the span of five years, or until you reach the age of 59\u2014whichever happens to occur first.<\/p>\n
This is a workable solution\u2014but only if you\u2019ve backed it up with some sound financial planning. What\u2019s important is laying out a roadmap to early retirement well in advance\u2014ensuring that your annuitized payments are sufficient for your needs, but also that they\u2019re not so great they\u2019re depleted prematurely.<\/p>\n
To learn more about the financial planning needs for your retirement, we invite you to contact the Stonepath Wealth Management team at your convenience.<\/p>\n","protected":false},"excerpt":{"rendered":"
Even for those who might love their work, the thought of retiring early can seem awfully appealing\u2014and awfully tempting. Say you were to retire at the age of 55, instead of waiting until you are in your 60s. You\u2019d have that much more time for travel, for golf, for spending time with family\u2014for doing whatever […]<\/p>\n","protected":false},"author":2,"featured_media":571,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"_acf_changed":false,"post_statement":"","post_description":"","post_cta":"","post_button":"Read More","post_button_url":"","footnotes":"","compliance_id":"","post_disclaimer":""},"categories":[14],"tags":[32,48,15],"acf":[],"yoast_head":"\n