I am currently 48 & plan to retire at 55 with $1.5 M. All but about $200K is in 401K. How do I tap into those

Question

My question is that I expect to have about $1.5 M when I want to retire at age 55. Allbut about $200K of that money will be in some form of IRA or 401 K. How do you tap into that money when you retire without penalty. Thanks.

Answer 1

It's called a IRS 72(t) distribution. Which basically means you must take an equal and substantial distribution from your qualified funds(IRA/401k). This amount is usually based on a minimum percentage you must withdraw, and you must draw it for at least five years.

Here is a calculator to give $ amounts:

http://www.finance.cch.com/sohoApplets/Retire72T.asp

Answer 2

The only way to avoid a 10% early withdrawl penalty is to transfer it all to an IRA when you retire, and then to make "substantially equal" annual withdrawls of an amount based on the total balance divided by the number of years an actuarial says you are expected to live. (It's a bit more complicated than that, but a tax accountant can figure it out for you.)

Are you quite sure $1.5 M will be enough? That will spin off maybe $75,000 a year safely, which is more than enough to live on today, even after taxes, but in another 20 years may not be enough to get by on!

Answer 3

according to the IRS, you likely don't.

What you do is spend from your non-retirement assets until the year in which you become 59 and 1/2 years old.

certain exceptions apply for the usual humanitarian reasons.

***
with your level of assets, I STRONGLY suggest you get proper counsel from a qualified tax planner [CPA or JD variety, not a commission salesman].

Her/his fee may be tax deductible. Besides, you can afford it.