Retire early? A new IRS rule could mean more money in your pocket
The Great Resignation leads to a flood of early retirements. When the decision to retire is made suddenly, there are challenges and obstacles that can cost retirees dearly. Many of these challenges depend on what age you leave employment. For example, you won’t have access to your Social Security until the age of 62, and even then your benefit will come at a steep discount that will weigh on you for life. Also, you can’t enroll in Medicare until you’re 65.
Perhaps the biggest age challenge for many early retirees is that you won’t be able to withdraw your own retirement savings until you are 59½ years old. Unless you qualify for one of the exceptions, any withdrawal from your IRAs and 401(k) accounts prior to that magic age will result in a 10% tax penalty on each withdrawal.
The good news is that a statement from the IRS in January will make that penalty a little less problematic. Retirees who retire before age 59 can now withdraw more money each year without suffering a 10% hit. And these changes are all due to esoteric assumptions used by the IRS when calculating mortality and interest rates
Fundamentals of essentially equal periodic payments
Here’s how it works. One of the key exceptions to the 10% penalty rule is that you can withdraw from your qualifying accounts (think 401(k), IRA, Roth IRA, etc.) before the age of 59½ if you “ Substantially Equal Periodic Payments (SEPPs). . This is often referred to as the “72