DON’T Rollover Your 401k || I’m 55 with $1,500,000 in Retirement Savings || Can I Retire?
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In this video I want to show you a scenario where I recommend a client to NOT rollover their 401k but instead leave her 401k at her old job and use that for retirement income.
This strategy is sometimes called the rule of 55 when it comes to your 401k. Basically, what this rules states is that if you are 55 or older and you leave your job or retire you can take retirement income out of your 401k without being penalized. You’ll still pay retirement income tax, but you won’t pay the 10% early IRA withdrawal penalty. So, what I want to show you is how this client was able to retire at 55 with 1,500,000 in her retirement savings and retirement investments, but why we had to leave her retirement investments in her 401k until she was 59.5.
Retirement income strategies and retirement income planning are two big pieces to anyones retirement planning calculator. Whether you are wanting to know strategies for “retirement planning at 30”, “retirement planning at 40”, “retirement planning at 50”, or even “retirement planning at 60” understanding how much retirement income that you want versus how much you need gives you a roadmap to follow to and through retirement.
Here at Pearl Wealth Group, we run a trademarked retirement investment and retirement income plan for individuals and families who are wanting to retire called “Your Financial EKG™.” What we are trying to visualize is how long a persons retirement savings are going to last throughout retirement. If you are looking for early retirement planning tips or trying to save for retirement, You Financial EKG™ is a great tool to help you understand where you are in your retirement planning. Retirement planning and retirement income strategies shouldn’t be complicated. They should just be done right.
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Drew Blackston, CRC® & RFC®
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As retirement approaches, many individuals begin to contemplate the best course of action for their 401k savings. For some, the temptation to rollover their 401k into a different retirement account may seem like a wise decision. However, financial experts warn against this move, especially for those who are nearing retirement age.
One such individual, let’s call him John, is 55 years old with a hefty retirement savings of $1,500,000 in his 401k account. With retirement on the horizon, John is considering the possibility of rolling over his 401k into another retirement account. However, financial advisors are quick to caution against this move, as it could have serious implications on John’s long-term financial well-being.
One of the main reasons why individuals are advised against rolling over their 401k is the hefty tax penalties that come with such a move. If John were to rollover his 401k into a different retirement account, he would likely face a significant tax bill on the amount of money transferred. This could eat into a substantial portion of his retirement savings, leaving him with less money to live on during his retirement years.
Additionally, rolling over a 401k can also result in financial loss due to potential fees and expenses associated with the new retirement account. John may find himself paying unnecessary fees and expenses that he wouldn’t have had to pay had he kept his money in his 401k. This could further deplete his retirement savings and jeopardize his financial security in the long run.
Given John’s sizable retirement savings of $1,500,000, he may already have enough money saved up to comfortably retire. However, it is crucial for John to carefully consider his financial goals, needs, and retirement timeline before making any decisions about his 401k. Consulting with a financial advisor can help John determine the best course of action for his retirement savings and ensure that he is set up for a secure and comfortable retirement.
In conclusion, it is important for individuals like John to think twice before rolling over their 401k, especially if they have substantial savings built up. By carefully weighing the potential tax implications, fees, and expenses associated with a rollover, individuals can make informed decisions about their retirement savings and secure their financial future. Consulting with a financial advisor is key to making the best choices for retirement planning and ensuring a comfortable retirement.
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This should be a video about Rule of 55 vs 72(t) distributions
Yep, little known fact that 401k can be withdrawn without the 10% penalty at age 55.
Dude can’t do simple math. It’s like picking a guardian animal as fox to your chicken coop lmao.
Everyone talks about ROLLING OVER the ROTH, but no one talks about the TAXES to ROLL OVER.
I am allowed to withdraw from inactive 401k at 55 without paying penalty? If I am not currently working. I got 3 different 401k accounts from previous jobs.
I have 401k with my employer. I got laid off and I am 55 year old. Company is giving me 6 month of severance pay (paid Bi-weekly). Am I able to utilize the rule of 55 now or do I have to wait for 6 months (after my severance pay ends)?
When using the rule of 55 can i withdraw any amount any time i need or does it need to be a fuxed periodic payments like 72T rule
Depending on your 401k plan rules and their investment choices, it's usually better to roll over to an IRA and use 72t to pull SEPPs from the IRA for 5 years or till 59.5. For a 1.5 million ira, you can take 75k out a year due to the new 5% calculation rule. However if you have more time before retiring to plan (5+ years), rolling over to Roth using a Roth Ladder will give you the most flexibility.
Great points
Damn good video, thank you. that the most logical explanation and walkthrough. I’ll be in a similar scenario at 55.
Almost 60 years old with 20 million in 401k. I won't need this much to retire, I live a pretty simple life but live on approximately 250k per year. Is there a smart way to minimize taxes if I wanted to gift a portion to each of my two children? Same question for if I set up a foundation? I'm interested in keeping 25% for my retirement and gifting 25% to each child and 25% to the foundation.
You could use a roth conversion ladder to access the money earlier.
It is crucial to have several years of living expenses (such as cash a Roth IRA) if you are planning on retiring early.
In this example, if this person had 5 years of living expenses outside of her 401K when she retired, she could have immediately rolled her 401K into an IRA and started doing Roth conversions.
Also be clear about what your 401(k) plan withdrawal rules are. Some plans force you to withdraw all of your assets and don’t allow you to come back every year for partial withdrawals.
Awesome. If I may how do you account for inflation long term? I would guess that you assume that a better than 4% long term return and that helps offset inflation? Thanks.
I have traditional, Roth and after tax (post 1984?) contributions/earnings in my 401k. Can I roll just the Roth and after tax parts to a Roth IRA. This way I can take post 55 distributions from the 401k and not worry about part after tax, part Roth distributions?
A 10% penalty for early withdraw of an IRA or 401K is not a issue before age 59.5 if you split the 401K into 2 separate IRAs and schedule a 72t distribution over the next 4.5 years at $70K a year from one of the IRAs. You can be taking annual $70K distributions from that IRA while it's still growing at 4% (or higher depending on investments in there) and actually making out ahead. In addition, the second IRA will be growing as well with no drawdown.
If the 401k plan only allows for a one-time penalty free withdrawal, how would you plan the early retirement? Thanks for the video!
going to throw a flag on the play Drew. She should keep about $375k in her 401k and roll the rest into the IRA when she does retire. That way the IRA is growing more so sooner than with the limited choices within her 401k. but that's me and that is our plan in Jan 2024 when we pop smoke 🙂
So what are some alternatives if you want to retire at 55-56? Instead of rolling over into IRA, is there a better option other than that to avoid the penalty before you get to 59.5? I’ve got 401k and lump sum pension I could do.
Good advice on stopping the roll over until 59 1/2. Will she be looking at an RMD tax bomb when she turns 72?
my question is a little different. We are planning on an early retirement and were originally thinking of utilizing a 72T but obviously rule of 55 generally offers more flexibility. We don't have enough really to be secure in an early retirement with only our savings and 401k. Does the IRS allow for us to transfer funds from our traditional IRA into our 401k while still working and once 55, retire and use the combined asset in our 401k?
This only works if "the plan" allows distributions. My company's plan is not in the distribution management business. As soon as you decide to take $1 you gotta take it ALL out. They will split it between a distribution and rollover but it all needs to come out in one shot. SO CHECK WITH YOUR PLAN MANAGER BEFORE COUNTING ON DREW'S SUGGESTION.
I have $3.6 million in 401k trad. It’s too much, I’m going to start to rollover , but can’t make a dent since it grows $300 k a year, if I rollover $150 k, it’s still growing. Rmd is going to be too much. I need help.
Taxes? Quite a deceptive rosey picture!
You mentioned at the end about other factors. Inflation is a huge one that should be included. It could derail the plan over that 15 year stretch.