Planning on Retiring Early? Use These Three Retirement Savings Strategies

August 10, 2017

White piggy bank tipped over with pennies pouring out
Retirement account rules are stacked against early retirees. People may face a 10 percent early withdrawal penalty if they take money out of their traditional IRAs before age 59½ and before age 55 with traditional 401(k) plans and other workplace retirement plans.

According to Tom Anderson, here are some strategies early retirees can use to maximize their retirement savings:

Rule 72(t) distributions

There is an exception to the early withdrawal penalty for IRAs. The IRS allows you to take “substantially equal periodic payments” under Rule 72(t).

To avoid the 10 percent penalty once you begin distributions, you must continue to take the required distribution for the longer of five years, or until you reach age 59½. Once distributions begin, if the series of payments is modified in any way, the 10 percent penalty will be imposed retroactively beginning with the first year of distribution.

Taxable accounts

In a taxable account, the money in the account is yours, minus capital gains taxes, without any strings attached to distributions.

Roth conversion

“[Roth conversions] require careful tax analysis each year, after the year is over, and before taxes are filed to determine the capacity for additional withdrawals or conversions,” said Pearce Landry-Wegener, a CFP at Summit Place Financial Advisors in Summit, New Jersey.

Converting to a Roth can be a bad idea if you live in a high-tax state and plan to move to a state with lower or no state income taxes later in retirement.

This article originally appeared on CNBC. If you’d like more information on retirement planning, contact us.