{"id":721,"date":"2017-06-12T18:32:00","date_gmt":"2017-06-12T18:32:00","guid":{"rendered":"https:\/\/webhostingnola.com\/wmsgroup\/?p=721"},"modified":"2024-10-17T18:38:37","modified_gmt":"2024-10-17T18:38:37","slug":"can-you-take-qualified-plan-distributions-before-age-59-%c2%bd","status":"publish","type":"post","link":"https:\/\/webhostingnola.com\/wmsgroup\/2017\/06\/12\/can-you-take-qualified-plan-distributions-before-age-59-%c2%bd\/","title":{"rendered":"Can You Take Qualified Plan Distributions Before Age 59 \u00bd?"},"content":{"rendered":"\t\t
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Of course, there\u2019s a catch to this tax-favored treatment. The accounts are tax-deferred because they are meant to be used as retirement savings vehicles. That means you can\u2019t take distributions before retirement age, which the IRS has designated as 59 \u00bd. If you take distributions prior to age 59\u00bd, you may face a 10 percent early distribution penalty.<\/p>

This could be problematic if you retire early. Even if you don\u2019t plan on retiring early, you could be forced into retirement before age 59 \u00bd. You could become disabled or suffer some other medical issue. You could be laid off and unable to find a new role. There are a number of reasons why you could retire before age 59 \u00bd.<\/p>

No matter the reason, early retirement presents a few challenges. One of the biggest is generating income from your qualified plans without paying early distribution penalties. Fortunately, there are a few strategies to help you accomplish this objective. Below are four steps to consider to create income in the early years of your early retirement:<\/p>\t\t\t\t\t\t<\/div>\n\t\t\t\t<\/div>\n\t\t\t\t

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Early Distribution Penalty Exceptions<\/h2>\t\t<\/div>\n\t\t\t\t<\/div>\n\t\t\t\t
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Typically, all distributions from a qualified account before age 59 \u00bd are subject to a 10 percent penalty. However, the IRS does allow for some exceptions to the early distribution penalty. Your eligibility for these exceptions depends on the type of qualified plan and the reason for the distribution.<\/p>

For example, if you need the distributions because of a disability, you could be exempt from the penalty. Your penalties could also be waived if you are using the money to pay for higher education costs, home purchases or even medical bills.1<\/sup>\u00a0A financial professional can help you determine whether your distributions would be eligible for penalty exceptions.<\/p>\t\t\t\t\t\t<\/div>\n\t\t\t\t<\/div>\n\t\t\t\t

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401(k) Distributions Under the Rule of 55<\/h2>\t\t<\/div>\n\t\t\t\t<\/div>\n\t\t\t\t
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The IRS also offers an exception known as the Rule of 55 specifically for 401(k) plans. It allows plan participants to take penalty-free distributions from a 401(k) plan if they separate from service from their employer in the year they turn 55 or later.<\/p>

Keep in mind, this strategy applies only to the 401(k) plan for the employer from which you separate from service. For example, you couldn\u2019t use this rule to take penalty-free distributions from an IRA or a 401(k) plan from another employer.<\/p>\t\t\t\t\t\t<\/div>\n\t\t\t\t<\/div>\n\t\t\t\t

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Roth IRA Contribution Withdrawals<\/h2>\t\t<\/div>\n\t\t\t\t<\/div>\n\t\t\t\t
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Do you have a sizable amount of retirement assets in a Roth IRA? Roth IRAs are popular because they\u2019re not only tax-deferred, but actually tax-free if you wait until after age 59 \u00bd to take withdrawals. After that age, there are no taxes on your Roth IRA distributions, allowing you to create a tax-free income stream in retirement.<\/p>

However, Roth IRAs also offer flexibility with early distributions. Since your Roth contributions are made with after-tax dollars, you are always allowed to withdraw your contributions tax-free and penalty-free at any time. The withdrawal of contributions could impact your future growth in the account, but this could be a strategy to consider if you have no other options.<\/p>\t\t\t\t\t\t<\/div>\n\t\t\t\t<\/div>\n\t\t\t\t

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Life Insurance Loan Distributions<\/h2>\t\t<\/div>\n\t\t\t\t<\/div>\n\t\t\t\t
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One unique strategy is to use life insurance cash value to create income. If you have a permanent life insurance policy that has a substantial amount of cash value, you may be able to use those funds to create income before age 59\u00bd.<\/p>

You can start by taking tax-free loans from the life insurance policy. Technically, these distributions aren\u2019t taxed because they represent a loan that has to be repaid. If you don\u2019t repay the loan, the balance is deducted from the policy\u2019s death benefit after you pass away.<\/p>

Ready to plan a strategy for your early retirement income? Let\u2019s talk about it. Contact us today at WMS Group. We can help you analyze your needs and develop a strategy. Let\u2019s connect today and start the conversation.<\/p>


1<\/sup>https:\/\/www.irs.gov\/retirement-plans\/plan-participant-employee\/retirement-topics-tax-on-early-distributions<\/p>\t\t\t\t\t\t<\/div>\n\t\t\t\t<\/div>\n\t\t\t\t

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Licensed Insurance Professional. This information is designed to provide a general overview with regard to the subject matter covered and is not state specific. The authors, publisher and host are not providing legal, accounting or specific advice for your situation. By providing your information, you give consent to be contacted about the possible sale of an insurance or annuity product. This information has been provided by a Licensed Insurance Professional and does not necessarily represent the views of the presenting insurance professional. The statements and opinions expressed are those of the author and are subject to change at any time. All information is believed to be from reliable sources; however, presenting insurance professional makes no representation as to its completeness or accuracy. This material has been prepared for informational and educational purposes only. It is not intended to provide, and should not be relied upon for, accounting, legal, tax or investment advice.<\/em><\/p>

16696 – 2017\/5\/23<\/em><\/p>\t\t\t\t\t\t<\/div>\n\t\t\t\t<\/div>\n\t\t\t\t\t<\/div>\n\t\t<\/div>\n\t\t\t\t\t<\/div>\n\t\t<\/section>\n\t\t\t\t<\/div>\n\t\t","protected":false},"excerpt":{"rendered":"

Have you used qualified plans like IRAs, 401(k) accounts, annuities and more to save for retirement? You\u2019re not alone. These accounts are popular because they allow you to accumulate assets without paying taxes on the growth. In most cases, you avoid taxes until you take distributions. In the case of a Roth IRA, you may never pay taxes on your growth or distributions.<\/p>\n","protected":false},"author":1,"featured_media":724,"comment_status":"closed","ping_status":"","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[1],"tags":[],"class_list":["post-721","post","type-post","status-publish","format-standard","has-post-thumbnail","hentry","category-uncategorized"],"aioseo_notices":[],"_links":{"self":[{"href":"https:\/\/webhostingnola.com\/wmsgroup\/wp-json\/wp\/v2\/posts\/721","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/webhostingnola.com\/wmsgroup\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/webhostingnola.com\/wmsgroup\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/webhostingnola.com\/wmsgroup\/wp-json\/wp\/v2\/users\/1"}],"replies":[{"embeddable":true,"href":"https:\/\/webhostingnola.com\/wmsgroup\/wp-json\/wp\/v2\/comments?post=721"}],"version-history":[{"count":4,"href":"https:\/\/webhostingnola.com\/wmsgroup\/wp-json\/wp\/v2\/posts\/721\/revisions"}],"predecessor-version":[{"id":727,"href":"https:\/\/webhostingnola.com\/wmsgroup\/wp-json\/wp\/v2\/posts\/721\/revisions\/727"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/webhostingnola.com\/wmsgroup\/wp-json\/wp\/v2\/media\/724"}],"wp:attachment":[{"href":"https:\/\/webhostingnola.com\/wmsgroup\/wp-json\/wp\/v2\/media?parent=721"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/webhostingnola.com\/wmsgroup\/wp-json\/wp\/v2\/categories?post=721"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/webhostingnola.com\/wmsgroup\/wp-json\/wp\/v2\/tags?post=721"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}