I am trying to come up with the way forward within the next two to three years to retire and need help. I’m turning 54 this summer and my wife is 48. Between us we earn about $ 210,000 a year. We are currently saving about $ 1.6 million with $ 680,000 in my former employer’s 401 (k), $ 300,000 in my wife’s former employer’s 401 (k), $ 600,000 in my current employer’s 401 (k) and $ 75,000 in different shares we own. I currently contribute about $ 25,000 annually to my 401 (k), which includes my employer’s contest.
We have a $ 225,000 vacation home that we pay for, and we have about $ 250,000 in our current home. We currently have two children at university, but that will be done after next year. I feel like we can live fairly cheaply, for about $ 70,000- $ 80,000 every year, but many times we want to travel in an RV as soon as we retire and we want to do so while still enjoying the outdoor lifestyle. We will cut it down to one house, probably the holiday home, or we will both sell and relocate / build somewhere else. But we will probably live in the holiday home for two years to prevent us from earning profits from selling it.
I feel we have enough savings and that it will grow for the next two to three years before we decide to end it, but the challenge is to get to the money as it is now all in 401 (k) plans . We can finance a year of retirement with just selling the shares we own, but we still need to finance at least another year before we can use my 401 (k) at 59 1/2.
Is it worth it to just pay the 10% penalty on early withdrawals versus taxes paid and convert a large amount of the former 401 (k) plans to a Roth? My company does allow withdrawals by the 55 rule, but you have to withdraw it all and I know I do not want that tax liability. Any help or advice would be appreciated.
Thank you!
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Dear reader,
Congratulations on collecting such a high nest egg. You bring up an interesting dilemma that retirement savers do not think about, because your retirement assets are locked into investment portfolios that are meant to be used at an older age.
Employer-funded retirement accounts, such as 401 (k) plans, are an excellent tool for investing for retirement because their taxes are deferred, meaning more money grows until it’s time to withdraw. They also have a higher annual contribution limit than some other tax benefits, such as individual retirement accounts. But as you can see, the money can be difficult to withdraw for those who want to retire before the age of 59, as they will also receive a 10% fine in addition to the tax they owe at the benefit.
Fear not – there are ways to prevent this problem, financial advisers have said.
The first task is to review your company’s policy for the age of 55 (for readers who do not know this rule, people aged 55 and over who have been separated from their job – because they have been fired or voluntarily leave is – use the 401 (k) of their current employer before the required age 59 59). Businesses may have their own stipulations on this rule, but an “all or nothing” policy seems rare, said Henry Hoang, founder of Bright Wealth Advisors.
If this is not really possible, there is the 72