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Rule of 55?

 

Mark Rubin
(@mbrubin56)
New Member Customer
Joined: 2 months ago
Posts: 1
Topic starter  

I am thinking of stopping work next year, which happens to be the year I turn 55. I have a 401K at work, and was thinking of rolling over my traditional IRA into my work 401K before I stop work to allow me to take advantage of the rule of 55 -- the rule that allows me to take withdrawals from my 401K without penalty before 59.5 if I'm doing it from a 401K from a job I left in the year I turn 55 (or older). Originally, I was going to do this as a just in case measure, since maybe I'll need access to that money early. But then it occurred to me that it might be better for tax reasons, allowing me to start filling up smaller tax bracket buckets with that money earlier. Is there a way to model this in Pralana Gold?

Thank you for any help! And I love the tool.


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Stuart Matthews
(@smatthews51)
Member Admin
Joined: 1 year ago
Posts: 230
 

Mark,

No, there's no way to do this in PRC, primarily because it makes no distinction between your traditional IRA and your 401k at work. They're both lumped together in your tax-deferred account.


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Bill Hines, Retirement Planner
(@hines202)
Trusted Member Customer
Joined: 9 months ago
Posts: 70
 

Congrats on early retirement, Mark @mbrubin56! I'm helping a lot of folks with that lately, a lot of it to do with covid. Folks are just worn out.

Please make sure you have the math worked out carefully in terms of a long retirement time horizon, and your investments are in line with that. Remember, the 4% rule is predicated on a 30 year retirement. Thankfully, Pralana provides the roadmap, but it's also dependent on having low fees/expense ratios in your investments, diversification, asset allocation in line with your age, timer horizon, income needs, and risk tolerance.

Also, importantly, make sure you have a plan for what you'll do with your time.

Bill Hines
Investment Advisor/Financial Counselor/Retirement Planner
Emancipare Investment Advisors LLC
https://emancipare.com
bill@emancipare.com


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Michael Larimer
(@michaellarimer)
Active Member Customer
Joined: 9 months ago
Posts: 5
 

Yes, this is a bit of my situation also, for many of the same reasons...COVID and worn out...

So I haven't checked the math yet myself, how does PRC handle the tax on 401(k) withdrawals before 59-1/2...would it be helpful to add in a "rule of 55" switch to negate the 10% penalty?

Maybe a bit too much on the programming side for only a small benefit in granularity?


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Stuart Matthews
(@smatthews51)
Member Admin
Joined: 1 year ago
Posts: 230
 

@michaellarimer PRC always applies the 10% penalty to withdrawals from tax-deferred accounts prior to age 59 (it works with a granularity of one year, so it generally has no ability to deal with the additional half year).


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