In our constantly changing business environment many people are finding themselves the victim of corporate downsizing or layoffs. Often times this can present a difficult financial situation, depending on the amount of time an individual goes without steady income. It is important that you weigh all of your options when thinking about how to handle a difficult financial situation – length of time it is expected to last, amount in savings, ability to budget, etc.
If you are currently between jobs or have decided, due to circumstances, to take an early retirement you may want to consider your options with you current Retirement Savings. One option is to roll your current corporate retirement plan into an IRA. This will allow you and/or your Financial Advisor to manage your retirement savings as you see fit. Once your money is under your management you can assess your next steps. If, as mentioned earlier, you are finding yourself faced with difficult financial decisions or in early retirement you may need to consider drawing on your Retirement Savings.
Dipping into Retirement Savings should always be done cautiously and with a long term plan in mind. Generally you must pay a 10% penalty on any taxable amounts that you withdraw from your IRA before 59 1/2. This is not the case, however, if you qualify for an exception. Exceptions include: becoming permanently disabled, paying higher education expenses or using up to $10,000 to buy your first home. You can avoid the penalty with Section 72(t) of the Internal Revenue Service code…
72(t) lets you take withdrawals for any reason and without penalty as long as you meet both of the following requirements:
- Withdraw essentially equal amounts once a month, quarter, or year. Specific IRS guidelines outline how to calculate these amounts, which will be based on your life expectancy.
- Continue taking these withdrawals for five years or until you reach age 59 1/2 – whichever it later. So, if you start taking withdrawals at age 56, you must continue taking them through age 61.
It is important to keep in mind that if you increase of decrease your 72(t) withdrawal amount or take additional withdrawals from the same IRA(s), you will trigger the 10% penalty, plus the interest, on all payments you’ve taken.
The 72(t) is an important option to be aware of and consider in today’s changing environment. As mentioned above, it is important though to have a complete financial plan of which a 72(t) may be a part. Remember to explore all of your options.
Securities and advisory services offered through Geneos Wealth Management, Inc. Member FINRA/SIPC