What I've Learned From You, Roger?

When planning your retirement journey it is imperative that you fully explore and understand the options available. On this episode of Retirement Answer Man, Shane asks about the best ways to access his retirement accounts early.

Taylor Schulte from Define Financial joins me in the listener questions segment to discuss Shane’s question by clarifying the rule of 55 and 72(t), the ups and downs of using his fiduciary to prepare Jay’s taxes, and how to fund the first 5 years of retirement.

Don’t miss out on the answers to questions from listeners like you. Tune in to hear if Taylor’s response matches my own. Accept where you are now 

“We must be willing to give up the life that we planned so as to have the life that is waiting for us.”--Joseph Campbell

It is easy to look back with wonder at the plans you had for your life. Even if everything is going well, we’ve all had life plans that were interrupted by curveballs. While those curveballs can throw us off course, it’s important to understand and acknowledge where we are now. Rather than ignoring or avoiding your present situation, accept your situation the way it is. 

Radical acceptance is fully accepting things as they are now. Only when you fully accept what your current reality is can you look forward to creating a fantastic life ahead. Recognize where you are starting from so that you can plan to rock retirement. What is the rule of 55? 

Shane is currently planning to work until age 55. He would like to use the rule of 55 to access his 401K. The rule of 55 is an IRS provision that allows workers who leave their current job to start taking penalty-free distributions from their current employer's retirement plan upon reaching age 55. 

Note that the rule of 55 does not apply to IRA accounts. It is only to be used for 401Ks. So if you think you may want to use the rule of 55, then you’ll want to make sure that you don’t roll this account over to a Roth IRA. 

Although this provision seems cut and dry, there are a couple of things to look out for. First, you’ll want to be clear about whether your employer will allow you to use the rule of 55 for your 401K. 

Next, you’ll need to see whether the employer will allow you to withdraw the funds on a partial basis so that you don’t have to entirely deplete the account.

Lastly, you should note that the current tax filing rate for the rule of 55 is at 20%. The ins and outs of using 72(t) for qualified accounts 

Shane’s backup plan in case he gets laid off is to use 72(t). Similar to the rule of 55, 72(t) allows workers to gain early access to their 401K or 403B without penalty.

Typically 401K contributors cannot access their retirement savings before age 59.5 without penalty. However, the rule of 72(t) allows for 5 equally periodic penalty-free payments. These payments must be made according to the schedule laid out by the IRS. It is essential that the account holder not add or withdraw anything more during this time period. 

Using the 72(t) rule is tricky and it is critical that you carefully abide by the IRS’s rules. Listen in to hear a tip on what you could do if you only want to access part of the funds in your 401K using rule 72(t). OUTLINE OF THIS EPISODE OF THE RETIREMENT ANSWER MAN PRACTICAL PLANNING SEGMENT 

• [2:01] On radical acceptance in retirement planning

LISTENER QUESTIONS WITH TAYLOR SCHULTE 

• [6:40] What should I know before using 72T to fund retirement?
• [13:25] Jay wonders if there are pitfalls to having his family office fiduciary prepare his taxes
• [23:49] How to fund the first 5 years of retirement
• [30:18] Belinda’s question on whether to keep term life insurance in retirement

TODAY’S SMART SPRINT SEGMENT 

• [37:42] Radically accept one aspect of where you are now

Resources Mentioned In This Episode
Taylor Schulte - Define Financial
Taylor Schulte’s Stay Wealthy podcast
Rock Retirement Club
Roger’s YouTube Channel - Roger That
BOOK - Rock Retirement by Roger Whitney
Roger’s Retirement Learning Center