Best way to take early withdrawals
Aloha,
I have a client who is 56-1/2 years old. She would like to use her 401K to immediately create a monthly income stream for herself. This will be her primary source of income until she starts taking social security which she plans to do at 62.
I have been trying to research setting up a 72t for her after rolling it into an IRA, but is this the ideal set up for her if she needs the money to be there with her for the rest of her life?
Thank you in advance for your assistance.
k
Permalink Submitted by Anonymous (not verified) on Thu, 2009-11-19 02:30
First off: Can she take penalty-free withdrawals from the 401K now and until 59 1/2?
pmk
Permalink Submitted by [email protected] on Thu, 2009-11-19 19:07
I’m not sure if her plan allows for that, I will try to contact the administrator.
Permalink Submitted by Alan Spross on Thu, 2009-11-19 19:27
If it does, this is a much better way to go to avoid the penalty. It will allow her to avoid the rigid requirements and risks of a 72t plan that would have to run for 5 years.
However, if the 401k will only offer a lump sum, taking out 3 years worth in a single year will probably inflate her tax bracket as much as the penalty would cost. It would also require her to accurately predict 3 years of cash needs, and that is a difficult job.