How to Learn the Ins & Outs of Using Retirement Funds Earlier

Being able to use retirement funds earlier gives you more flexibility in your financial plan.

Learning the ins and outs of using retirement funds earlier than the accepted retirement plan "norm" of age 59 1/2 will require that you spend a significant amount of time reading the Internal Revenue Service's website and that you spend time at the library reading up on how various retirement plans work. However, you can understand the basics of using your retirement funds earlier by following a few guidelines.

Instructions

1. Use rule 72(t) exemptions. IRS rule 72(t) generally forbids withdrawing money prior to age 59 1/2, but if you make substantial and equal payments, you can access your retirement funds earlier. Accessing your retirement funds in this manner will require you to make withdrawals according to the IRS's required minimum distribution table, or a set actuarial table approved by the IRS and as outlined in IRS Notice 89-25, 1989-1 C.B. 662.

2. Access money from a Roth IRA, if you have one. You can withdraw contribution amounts prior to age 59 1/2 without a penalty or income tax due on the amount withdrawn, and for any reason. You cannot withdraw interest earnings without a penalty, however, until age 59 1/2.

3. Don't use qualified and non-qualified retirement plans. If you do not use qualified and non-qualified plans, like 401(k)s, IRAs and annuities, you can use your retirement funds any time you choose. Alternatives to retirement plans would be cash value life insurance or direct investments into stock and bonds.

References

• "Ernst & Young's Personal Financial Planning Guide, 5th edition"; Martin Nissenbaum, Barbara J. Raasch, Charles L. Ratner; 2004
• "Practicing Financial Planning for Professionals, practitioner's 10th edition"; Sid Mittra, Anandi P. Sahu, Robert A Crane; 2007
• "Life & Health Insurance, License Exam Manual, 6th Edition"; Dearborn Financial; 2004