Tap Into Your 401(k) or IRA
Money (04/01) Vol. 30, No. 4 p.68; Silverman, Arlene

A little-known Internal Revenue Service (IRS) rule allows people to make premature withdrawals from their retirement accounts, without being penalized. Although financial planners advise against taking money out of a retirement account before time, the 72(t) plan is a feasible option for people who have saved up enough. To exercise this option, a person would convert their 401(k) into a rollover IRA, then figure out how much they would need to live on. Planners recommend that people be precise about this and factor in all of their expenses, including mortgage, vacation, clothes, etc. Once they have a figure, they can select from among three IRS formulas to determine how much money to withdraw. The formulas include life expectancy, amortization, and annuity. Life expectancy provides the smallest withdrawals, and amortization and annuity allow a person to take a fixed amount. For a 52-year-old with a $500,000 IRA balance, annual withdrawals could range anywhere from $15,974 to $38,066.


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