2.1. The Definitive Guide to Withdrawing Funds Early From Your 401(k), IRA and Roth IRA

Goal of this lesson: Beli

Comments

9 Comments

Why not add to the conversation below? Your voice is welcome!

Such an important post! We were a dual-income household in high-cost, high-tax NYC for the first 25 years of our career so never qualified for a Roth. We maxed out our tax-advantaged retirement plans b/c the tax burden in NYC is so high. Now that we have the means on paper to FIRE, we would face a penalty to withdraw any of those funds. We’re using a mix of non-retirement plan assets and part-time consulting to bridge us till we’re penalty-free. We also have a solo 401k, and we can borrow from that. In the beginning of our careers, we didn’t think about FIRE and so didn’t even think we’d need our retirement monies till 59+ or even older. Still, we were glad to get the tax breaks when we really needed them.

We maxed out our tax-advantaged retirement plans b/c the tax burden in NYC is so high.

Whew yeah, in high-tax states those accounts are the most useful for sure. Starting my career in Florida that wasn’t something I thought much about, but it makes sense.

Borrowing from 401k’s is another big one for sure. I haven’t researched that one yet myself, but I’ll have to look into it. The Cares Act has a provision for borrowing w/the ability to defer which year you pay taxes too, which is handy.

Casey

Casey

July 1, 2020

Great summary article Adam! I will be using this as a reference point, especially when discussing with those new to the concepts.

One potential method I am looking into is the 72t method, but splitting my full IRA balance amongst different custodians to better customize how much I want to withdraw each year. There is a short statement about it in the FAQs of the article you referenced, but nothing substantial. The idea would be in your example where you have $1,000,000 in an IRA, maybe you send $300k to a different custodian and start 72t distributions, if you find you need more money in a later year, you send $100k to a different custodian and start 72t distributions there, and so on. After 5 years you have the option to stop on the first one and can continue to adjust.

Thanks Casey!

I’d completely forgotten about that situation with multiple custodians, but it sounds like a great idea. That allows you to start low and increase your withdrawals as you realize you need more, while ideally preventing yourself from taking out too much. Sounds like a solid plan for sure.

Great read, thank you. These are important to consider, especially now. Great Article!

uttama

uttama

July 5, 2020

Adam,

How does the Roth IRA ladder work if you only have a ROTH IRA and therefore don’t need to convert any money from a tIRA to a roth IRA? Meaning, can you take money out of a ROTH IRA earlier than 59.5 years old?

thanks!

uttama

On the bright side you can still remove money from a Roth IRA – but only your contributions. I haven’t found a way to withdrawal gains from a Roth (beyond the ones listed here). If I find anymore options I’ll update this post though!

Amazing summary of so much information in 1 place. I bookmarked it to come back and do a deeper read.

Thanks Liz!

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