Retiring before 59 1/2? Without Penalties?

[itsalwaysme]

I read on another post that if you start taking your retirement out before 59 1/2 there are penalties. With the plan my husband and I currently have - navy 20 years, teach for 20 years, he will retire at the age of 58/59. I'll only be 54 though! We'll have his military pension, but that wont be nearly enough to survive on. I guess shortly thereafter we'd be able to use his teaching pension or 401k from teaching (whichever is available at the time..). but what about MY IRA? Also, does TSP fall under this penalty? Will we just have to wait the 5 years to access my IRA to avoid penalties? Besides obvious things like making sure the house is paid off, and having x amount of months bills in savings, is there anything else we should be planning on?

[Rich Lunsford]

Superb question! It is true that there are penalties for accessing retirement accounts prior to your age of 59 ½.. The penalty is 10% and applies to the money you contributed that has not been taxed by the IRS and the gains you have made over the years of investment. In the case of the Thrift Savings Plan (TSP) and Traditional IRAs (assuming you took a deduction for your contributions), both would be subject to the 10% penalty prior to age 59 ½. So what can you do for those 5 or so years between your retirement and age 59 ½? This is where diversification of your investments comes into play. We talk about diversification of your investments and not having all the eggs in one basket. Diversification applies to tax treatment as well. All the money from your TSP and IRA will be taxable when you take it out – and possibly penalized prior to 59 ½. Now is the time to plan investments that you can access prior to 59 ½ without penalty. You may want to consider regular investment accounts such as brokerage or mutual fund accounts that are not in any tax-favorable plan and are fully accessibly. You will possibly have taxes to pay throughout the years but you could have a fully accessible account for your early retirement years without any penalty. There are other ways to plan ahead and I encourage you to discuss the specifics with a financial advisor or financial planner. Give USAA’s financial advisors a call.

Rich Lunsford is a CERTIFIED FINANCIAL PLANNERTM practitioner with USAA Financial Planning Services, one of the USAA family of companies. Rich holds the Series 7 and 66 securities licenses. Rich also holds the designations of Chartered Financial Consultant (ChFC®), Chartered Life Underwriter (CLU®), and CHARTERED RETIREMENT PLANNING COUNSELOR (CRPC®).

Financial advice provided by USAA Financial Planning Services Insurance Agency, Inc. (known as USAA Financial Insurance Agency in California), a registered investment adviser and insurance agency, and its subsidiary USAA Financial Advisors, Inc., a registered broker dealer.

Certified Financial Planner Board of Standards, Inc. owns the certification marks CFP® and CERTIFIED FINANCIAL PLANNER™ in the United States, which it awards to individuals who successfully complete CFP Board's initial and ongoing certification requirements.

[miamoa2002]

If she would have had a Roth IRA she could have accessed the money without penalty before 59 ½, yes?

What about OP, do you have a 401 from your work too or any kind of TSP?

[Rich Lunsford]

[QUOTE=miamoa2002;4972280]If she would have had a Roth IRA she could have accessed the money without penalty before 59 ½, yes?

Quite right! She could access the Roth IRA - in part. She can access the contributions made to the Roth without penalty. However the gains made in the account could be taxable and penalized prior to her age of 59 ½.

Rich Lunsford is a CERTIFIED FINANCIAL PLANNERTM practitioner with USAA Financial Planning Services, one of the USAA family of companies. Rich holds the Series 7 and 66 securities licenses. Rich also holds the designations of Chartered Financial Consultant (ChFC®), Chartered Life Underwriter (CLU®), and CHARTERED RETIREMENT PLANNING COUNSELOR (CRPC®).

Certified Financial Planner Board of Standards, Inc. owns the certification marks CFP® and CERTIFIED FINANCIAL PLANNER™ in the United States, which it awards to individuals who successfully complete CFP Board's initial and ongoing certification requirements.

[itsalwaysme]

My husband has a TSP and another retirement account - I'm not sure what kind. I have a ROTH IRA, but no 401k - my job doesn't do any type of match, and I was afraid it'd be to much of a pain to roll it over when we move in a year, so I'm just putting more into my Roth IRA. I guess the plan now is to open a mutual fund..