The 2020s have fallen far below the excitement of a new decade. For reasons need not mentioned here (being we are still living it), many are considering retirement far earlier than prior generations. Coincidentally, supporting a retirement lifestyle requires funding and for most of us that funding will come from a retirement account. Below is an option that many investors AND FINANCIAL ADVISORS easily forget can be used to access a retirement account without penalties.

If an employee separates from service prior to age 59 1/2 and has a retirement plan such as a 401k or TSP, they can take up to 2 1/2 years of retirement income (operative word) from their plan until age 59 1/2 without a 10% penalty. How you might ask? An IRA code called a 72t allows an exemption for avoiding the 10%
penalty when a person who separates from service at or after age 55 and takes money from many employer sponsored retirement plans. The way I have suggested clients to use this smart strategy during this market downturn where many are watching their 401k values fall is to apply for a 72t distribution where they keep at minimum 2 1/2 years income in their employer plan and if needed, starting at age 55 take equal amounts of income from their plan until age 59 1/2. This could potentially provide you with much more control of your money. You only have to hold aside 2 1/2 years of money in your retirement account to get to age 59 1/2 after which you could use an IRA rollover. You could even combine a pension and lump sum. I can discuss that on another day.

Bottom line, using a strategy like the above can preserve wealth and avoid unnecessary losses including taxes considering the expiry date of the TCJA, Tax Cuts and Jobs Act.

Give us a call or shoot us an email should you have any questions. Until…

DISCLOSURE: iPlan nor any of its employees are licensed tax professionals. Thus any content discussing tax strategies will need to be discussed with a tax professional prior to implementation.