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

General 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