Date: Mon, 21 Aug 2006 09:40:32 -0500
From: "jIM" 
Newsgroups: misc.invest.financial-plan
Subject: Re: Early Retirement & Oversaving in IRAs and 401ks
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woessner@gmail.com wrote:
> This is a topic that I've been thinking about for a while, now.  My
> wife and I max out our 401ks and IRAs every year and are on track to a
> very healthy retirement.  So healthy, in fact, that we'll probably want
> to retire early.  And by early, I mean before 59.5.
>
> I've started thinking that maybe we should put some after-tax money
> toward retirement.  But the very idea rubs me the wrong way.  The
> government really wants me to use tax-deferred vehicles to save for
> retirement.  They offer huge incentives to do so.  But at the same
> time, they're going to penalize me if I access those funds before age
> 59.5.  What the right hand giveth...
>
Question- isn't there a traditional IRA withdraw provision for
"substantially equal withdraws" for people which choose to retire
early?

I have read enough to know there is a provision, and if I choose to
retire early, I was counting on this provision applying to me- with the
money in my current 401k plan.


> Now, I know there are some loopholes to the age 59.5 rule.  Probably
> the simplest and most straight forward is to put money in a Roth.  That
> way, if you want to retire before the magic age, you can pull your
> principal out and live off of that.  Unfortunately, because of the low
> contribution limit, you can't really have that much principal in a Roth
> (less than $200K by the time you're 59.5).  But it would be a good
> start.  Also, my wife and I no longer qualify for Roth contributions.

The 200k is your projected amount you will have in the Roth, correct?
I am not aware of any "account maximum" rules.


>
> I'm open to any other suggestions.  Of course, this is all academic,
> since we're a LONG way from retirement.  But planning is good for the
> soul, right?  :-)
>
>

Create a taxable account which will fund you from retirement age to
59.5.  If you retire at age 50, then this account needs 9 years worth
of income in it.  Index funds, drips, tax efficient funds are all good
examples.

Captial gains tax rates might be lower than your ordinary income tax
rates, there may be advantages to this technique.

Dividend tax rates might be lower than your ordinary income tax
rates... look into this.

This technique will also build up a reserve which could be tapped into
in case of emergency or lawsuit.