Archive for April, 2008
Interest Rates Used to Calculate Early Withdrawal
April 20th, 2008
What interest rate may be used for the 72t Calculator?
The interest rate that may be used in a 72 t calculator is any interest rate that is not more than 120% of the federal mid-term rate for either of the two months immediately preceding the month in which the distribution begins.
| Month | 120% of the Federal Mid-term Rate |
| March | 4.01% |
| April | 3.80% |
| May | 3.81% |
| June | 4.67% |
| July | 4.94% |
| August | 4.81% |
| September | 4.61% |
| October | 4.36% |
| November | 4.26% |
| December | 4.28% |
| January | 4.53% |
| February | 4.60% |
Example:
After consulting the 72t Early Retirement rules, you are ready to begin 72t Distributions in October. You may choose either the August or September rate or a lower rate for computing the distribution under the amortization or annuitization methods.
Posted in Early Withdrawal | 
Tags: annuitization, interest rates, interest rates calculate early withdrawal | 
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Early Withdrawal Penalties
April 19th, 2008
Question: Max out 401k now and pay Early Withdrawal penalties later? Or invest excess into a brokerage account?
If I’m planning to retire early (45-50), is it better for me to max out my 401k now and pay the 10% penalty when I begin withdrawing early? Or is it better to invest the extra money in a taxable brokerage account that won’t charge penalties upon withdrawal?
Answer: If you get a company match, contribute enough to the 401k to take full advantage of the match. Think about it–if the company match is, say, 25%, and you later pay a 10% penalty, you still come out ahead.
Put the rest of your money (or all of it, if there’s no match) into a taxable account. If tax-efficiency is an issue for you, you could look at some tax-managed mutual funds, such as those offered by Vanguard. You’d still defer most, if not all, of your taxes on gains (not principal) until you need to sell, and then you’ll only pay long-term capital gains taxes, as opposed to paying taxes at your full income tax rate like you would with the 401k.
Another option (if you qualify) would be a Roth IRA. When you’re ready to retire at 45-50, you could withdraw your PRINCIPAL with no penalties or taxes, and if you wait until age 59 1/2 to withdraw your gains, those will be tax-free too.
Perhaps a combination of the above would work for you. Good luck!
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