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We have $ 1.6 million but most of it is locked in our 401 (k) plans – how can we retire early without paying too much tax?


I’m trying to figure out a way to retire within the next two to three years and need some help. I will be 54 this summer and my wife is 48 years old. Between us, we make about 210,000 dollars a year. We currently have about $ 1.6 million in savings with $ 680,000 out of my former employer’s 401 (k), $ 300,000 out of my wife’s ex-boss’s 401 (k), $ 600,000 of the current employer’s 401 (k) and $ 75,000 in the various stocks we hold. I currently contribute about $ 25,000 to my 401 (k) per year, including my match with my employer.

We have a $ 225,000 paid holiday home that has been paid for and about $ 250,000 in equity in our current home. We have two kids in college right now, but that should be done next year. I feel like we can live quite cheaply, around 70,000 – 80,000 USD per year, but we want to travel a lot of RVs when we retire and we want to do this while still enjoying life. out side. We’ll cut it down on one house, maybe a hostel, or we’ll sell them both and move / build somewhere else. But we will definitely live in the motel for two years to avoid paying a profit when selling it.

I feel we have enough savings and it will continue to increase for the next two to three years before we decide to call it decommissioned but the challenge is how to make money because it all lies. in the 401 (k) plan right now. We could fund a year of retirement just by selling our stock but still need funding for at least another year before we can mine my 401 (k) at 59 1 /2.

Is it worth paying a 10% penalty on early withdrawals versus paying taxes and converting large amounts of old 401 (k) plans into Roth? My company allows withdrawals through rule 55 but you have to withdraw everything and I know I don’t want that tax obligation. Any help or advice would be appreciated.

Thanks!

Check out MarketWatch’s “Retirement Hacks” for helpful tips for your own retirement savings journey.

Dear readers,

Congratulations on accumulating such a lofty egg nest. You present an interesting dilemma that some retirement savers may not think about, which is that your retirement assets are locked in the portfolios they plan to use at your age. bigger.

Employer-sponsored retirement accounts, such as a 401 (k) plan, are a great tool to invest in super because they are tax-deferred, meaning more money for your retirement. until the money is withdrawn. They also have a higher annual contribution limit than some other tax-beneficial portfolios, such as personal retirement accounts. However, as you are going through, money can be hard to withdraw for those who want to retire before age 59 ½, as they will face a 10% penalty on the tax they pay when distributing.

Don’t be afraid – there are ways to get around this, said the financial advisers.

The first task is to thoroughly check your company’s policy on the 55-year-old rule (for readers who are not familiar with it, it allows people 55 and older to be separated from the public). job – because they were fired or left voluntarily – to access a 401 (k) from their current employer prior to the claim age 59). Companies may have their own rules on the rule, but an “all or nothing” policy seems rare, says Henry Hoang, founder of Bright Wealth Advisors.

Read: Here’s how you can withdraw from your 401 (k) at 55 – without paying a penalty

If it’s really not possible, yes 72

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