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The 54-Month Planning Window

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401k’s and IRA’s have different rules when it comes to taking penalty-free withdrawals.  The more common rule is that you must obtain age 59 ½ to avoid the 10% early withdrawal penalty from an IRA.

However, you must only obtain age 55 to withdrawal funds from your 401k without the early withdrawal penalty. Please note: If you separate from an employer before age 55 the 10% penalty is applicable even if funds remain in the 401k past age 55.

If your plan involves stepping away from employment before age 59 ½, consider leaving some funds in your 401k to take withdrawals from during this magical 54-month window (the gap between age 55 and age 59 ½).

For example, if you might need a $5,000/month gross if you stopped working, consider leaving $270,000 ($5k * 54 months) in your 401k before consolidating into your IRA.


Information in this material is for general information only and not intended as investment, tax, or legal advice. Please consult the appropriate professionals for specific information regarding your individual situation prior to making any financial decision.

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