How to Retire at 50

When you search on the web about early retirement, financial sites will lead you to think that you can't get your 401K or traditional IRA until 59 1/2. Simply not true. Read on.

Sean J. Miller

Before doing anything this article may inspire, consult a tax professional.

After years of reading stock news and financial articles prepping for retirement, one thing that eluded me was that one can tap into their 401Ks or traditional IRAs prior to 59 1/2 years old.  Not knowing this is what always kept me focused on working in my profession all the way until I was at least 60. Don't get me wrong - I love what I do, but for my mental health, I'd rather know I'm working for fun and by my own choice.  Just achieving that mental state, even while planning to continue to work until 80, is an absolute game changer for me.

If you leave your money in a company 401K, you can tap into it starting at 55 penalty free.  Just call the firm that is holding your 401K when you are first considering it and they'll be obligated to discuss it with you. However, I find this is very limiting.  My preference is to do rollover to a traditional IRA in my broker of choice.  You can do a roll over penalty free within 60 days of separation from an employer.

So, if you change companies or are ready to try not working at all, consider transferring the money to a traditional IRA account ASAP (within 60 days) after leaving.  You'll have much more flexibility in your investments.  Also, if you call them first, you have a strong chance of getting a promotional offer for doing so that gives you a nice little 4 figure bonus.

Once you have the money in the traditional IRA, you can now use IRS Rule 72(t).  Financial brokers will most likely discourage this - they will also not bring it up as an option without you prying for it.  How come?  You will be stopping a money source coming into their funds and taking deductions from your account.  You are basically working for them so they can make money.  Ending that arrangement is detrimental to their business model if everyone did it.

IRS Rule 72(t) is basically a way to trigger early retirement withdrawals from your traditional IRA penalty free. There are some common sense rules you must follow to prevent the penalty.  They aren't scary rules - just rules to ensure people don't abuse the 72(t) just to access the cash for a car or a boat.  You calculate a set amount to withdraw each year and you have to stick to it until 59 1/2.  After that, it's the normal game of retirement kicks in.  That easy!

So, if you were blessed/disciplined enough such that annual deductions of 4% of your ever growing nest egg would afford you a fun life, consult your tax professional on how to properly apply IRS Rule 72(t).  Just know that the distributions under IRS Rule 72(t) are fixed for at least 5 years.  If inflation kicks in, you might possibly have to get a part time job or do a little consulting in your old field.  Sounds fun, actually. 

Of course, there is nothing wrong with working until you are 80 or older and leaving a nest egg for your children. At the least, be informed and know what point you are just working for fun!

Again, before doing anything this article may inspire, consult a tax professional.

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