Retiring Early? A New IRS Rule Could Mean More Money in Your Pocket

The Great Resignation is translating into a flood of early retirements. When the decision to retire has been made suddenly, there are challenges and roadblocks that can cost the retiree dearly. Many of these challenges are dependent on what age you are when you leave employment. For example, you can’t access your Social Security until age 62, and even then, your benefit will be at a steep discount that you’re saddled with for life. Further, you can’t sign up for Medicare until you’re age 65.

Perhaps the biggest age challenge for many early retirees is that you can’t withdraw your own retirement savings until you’re age 59½. Unless you qualify for one of the exceptions, any withdrawal from your IRAs and 401(k) accounts before this magic age will result in a 10% tax penalty on each withdrawal.

The good news is that a January pronouncement from the IRS will make this penalty a little less troublesome. Retirees who are leaving the workforce before age 59½ will now be able to take out more money each year without incurring a 10% hit. And these changes are all because of esoteric assumptions the IRS uses in calculating mortality and interest rates

Substantially Equal Periodic Payments Basics

Here’s how it works. One of the key exceptions to the 10% penalty rule is that you can withdraw from your qualified accounts (think 401(k), IRA, Roth IRA, etc.) before age 59½ if you take “Substantially Equal Periodic Payments” (SEPPs) . This is often referred to as the “72

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