Sustainable Bliss

never stop learning!

Retirement Planning

Plot out how and when different investments can be accessed to determine when you can retire

Common Retirement Income Streams

  • 401(k)
    • deposit monies pre-tax
    • withdrawal taxed as regular income
    • can begin withdrawal at age 59.5
    • must begin withdrawal by age 70.5
    • can take as lump sum or installments, or turn into annuity
    • SEPP option for withdrawals before age 59 1/2
    • Rule of 55 applies
  • Roth IRA
    • deposit monies taxed
    • withdrawal tax fee if account has been open min 5 years
    • can begin withdrawal at age 59.5
    • can withdraw principal at any point tax free
    • SEPP option for withdrawals before age 59 1/2
  • Traditional IRA
    • deposit monies pre-tax
    • withdrawal taxed as regular income
    • can begin withdrawal at age 59.5
    • 10% penalty if withdraw before age 59 1/2
    • must take RMD (required minimum distribution) at age 70 1/2
    • SEPP option for withdrawals before age 59 1/2
  • Profit Sharing Plan
    • withdrawal taxed as regular income
    • can roll into IRA or 401(k)
    • SEPP option for withdrawals before age 59 1/2
    • Rule of 55 applies
  • Pension
    • withdrawal taxed as regular income
    • if it is not a significant amount, check into turning it into an annuity
    • SEPP option for withdrawals before age 59 1/2
    • Rule of 55 applies
  • Social Security
    • check to see what you can expect: https://www.ssa.gov/myaccount
  • Rental Income
    • taxed as regular income, minus expenses and depreciation
    • re-sets cost basis of home to date it turns into rental

Withdrawal Tips

  • Can start drawing out retirement assets penalty-free the year after you turn age 59 1/2
  • Penalties
    • 10% penalty if withdraw before 50.5 yrs old
    • 10% penalty does not apply for health insurance for unemployed
    • avoid by using SEPP
  • SEPP = Rule 72(t) / 72(q) substantially equal periodic payments
    • can draw retirement assets out earlier than 59 1/2 penalty free if you take these set payments
    • must take for either 5 years min or until you reach 59 1/2
    • IRS formula for how much you can take out annually, based on your current age and the amount of money in the account: http://72t.net/72t/Sepp/Calculators
  • Rule of 55:
    • if employee leaves in year they turn 55 or older, no 10% penalty for withdrawals
  • Health Saving Account
    • deposit monies pre-tax
    • while employed, deposit as much as possible into HSA account
    • stays with you after you leave job
    • can use for health insurance premiums, co-pays, etc

GeneralĀ Approach

  • roll Profit Sharing Plan or pension into 401(k) / IRA for ease of control/access
  • keep tabs on taxable withdrawals to be sure you stay below tax rate bump
  • start with taxable streams - 401(k), Traditional IRA, Profit Sharing Plan - so that non-taxable (Roth IRA) can keep growing and your overall tax burden is less
  • consider moving funds into Roth IRA as early as possible, bearing in mind tax consequences (up to tax rate bump)

If leave job before 55:

  • start SEPP from 401(k) / IRA
  • start withdrawal from Roth (principal only) penalty free - last resort

If leave job after 55, before 59 1/2:

  • use Rule of 55 to start withdrawal of 401(k) and Profit Sharing Plan penalty free