I am trying to find a way to retire in the next two or three years and I need help. I’m going to be 54 this summer and my wife, 48. Together, we earned about $ 210,000 one year. We currently have about $ 1.6 million saved with $ 680,000 in my former employer’s 401 (k), $ 300,000 in my wife’s former employer 401 (k), $ 600,000 in my current employer’s 401 (k) and $ 75,000 in various shares that we own. I currently contribute about $ 25,000 to my 401 (k) each year, which includes my employer.
We have a $ 225,000 vacation home that is paid for and has about $ 250,000 of equity in our current home. We have two kids in college now, but that will be done next year. I feel like we can live quite cheaply, for about $ 70,000- $ 80,000 every year, but we want to travel a lot in a trailer as soon as we retire and we want to do that while we can still enjoy the outdoor lifestyle. We are going to reduce it to one house, probably the vacation home, or we are going to sell both and move / build elsewhere. But we would be sure to live in the holiday home for two years to avoid paying any gains from selling it.
I think we have enough savings and that will continue to grow in the next two or three years before we decide to give up, but the challenge is how to get to the money, since everything is in the 401 (k) plans now. We could finance a year of retirement just by selling the shares we own, but we would still need to finance at least another year before we can access my 401 (k) at 59 and a half.
Is it worth just paying the 10% fine on early withdrawals versus paying taxes and converting a large amount of the old 401 (k) plans into a Roth? My company allows withdrawals under the rule of 55, but you have to withdraw everything and I know I don’t want this tax obligation. Any help or advice would be welcome.
Thank you!
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Dear reader,
Congratulations on accumulating such a huge savings. You bring up an interesting dilemma that some retirement savers may not think about, which is having their retirement assets locked into investment portfolios intended for use at an advanced age.
Employer-sponsored retirement accounts, such as 401 (k) plans, are a great tool for investing in retirement because they have deferred taxes, which means that more money is growing until it’s time to cash out. They also have a higher annual contribution limit than some other portfolios with tax advantages, such as individual retirement accounts. But, as you are experimenting, it can be difficult to withdraw money for anyone who wants to retire before age 59 and a half, as they will face a 10% penalty on the taxes they owe on distribution.
Don’t be afraid – there are ways to get around this problem, financial advisers said.
The first task is to check your company’s policy for the 55-year rule (for readers unfamiliar with this rule, it allows people aged 55 and over who have been separated from their jobs – either because they have been laid off or voluntarily left – to access 401 (k) from your current employer before the required age 59 ½). Companies may have their own stipulations on this rule, but an “all or nothing” policy seems rare, said Henry Hoang, founder of Bright Wealth Advisors.
If not really possible, there is option 72