Plan To Retire Early? How To Make It Work With Traditional Retirement Funds

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Early retirement is no longer an unusual topic. We have seen young professionals save up a large portion of their pay by living frugally and making wise investment decision so that they can leave their careers before the usual retirement age. With proper planning and diligence, it is possible to build significant net worth over a relatively short period of time, and the use of alternative investments often increases chances for achieving your early retirement goals.

The problem is that qualified retirement plans, such as 401(k)s and IRAs, were created with the traditional blueprint; you are supposed to leave your money untouched until you reach 59 ½ years old.

This leads to a heated debate over whether traditional retirement accounts are a good idea for those who aspire to retire early. One common argument against 401(k) and IRA accounts is that an early retiree will need the money before the traditional retirement age and these funds are constrained to traditional investments, such as stocks, bonds and mutual funds. If a person takes an early distribution from a 401(k) or IRA, a penalty of 10% will apply, minimizing the amount of funds the investor is left with.

In my opinion, the problem with this argument is that it focuses mainly on the period before the person turns 60. A retirement, early or not, does not simply end at the age of 60. Most people plan to live much longer than that. Even if you retire in your 40s and wait until you can withdraw from your retirement funds without penalty, your 401(k) contributions can still become a substantial supplement to your taxable investments. And, with the use of a self-directed IRA or 401(k), the account holder has virtually limitless investment options, including real estate, private businesses, trust deeds, tax liens, cryptocurrency, private lending and more.

Another problem with this argument is that most people assume retirement funds are absolutely untouchable until the retiree is 60 years old. While restrictions are in place, there are certainly workarounds that can help individuals tap into their retirement funds early. Below, we will discuss different ways you can gain access to your 401(k) or IRA funds for an early retirement.

How To Access Your Retirement Funds Early

Route I: Paying The Penalty

In most cases, if an account owner makes a withdrawal from his or her retirement funds before the age of 59 ½ years, it will be considered an early withdrawal and result in an additional tax penalty of 10%.

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Early retirement is no longer an unusual topic. We have seen young professionals save up a large portion of their pay by living frugally and making wise investment decision so that they can leave their careers before the usual retirement age. With proper planning and diligence, it is possible to build significant net worth over a relatively short period of time, and the use of alternative investments often increases chances for achieving your early retirement goals.

The problem is that qualified retirement plans, such as 401(k)s and IRAs, were created with the traditional blueprint; you are supposed to leave your money untouched until you reach 59 ½ years old.

This leads to a heated debate over whether traditional retirement accounts are a good idea for those who aspire to retire early. One common argument against 401(k) and IRA accounts is that an early retiree will need the money before the traditional retirement age and these funds are constrained to traditional investments, such as stocks, bonds and mutual funds. If a person takes an early distribution from a 401(k) or IRA, a penalty of 10% will apply, minimizing the amount of funds the investor is left with.

In my opinion, the problem with this argument is that it focuses mainly on the period before the person turns 60. A retirement, early or not, does not simply end at the age of 60. Most people plan to live much longer than that. Even if you retire in your 40s and wait until you can withdraw from your retirement funds without penalty, your 401(k) contributions can still become a substantial supplement to your taxable investments. And, with the use of a self-directed IRA or 401(k), the account holder has virtually limitless investment options, including real estate, private businesses, trust deeds, tax liens, cryptocurrency, private lending and more.

Another problem with this argument is that most people assume retirement funds are absolutely untouchable until the retiree is 60 years old. While restrictions are in place, there are certainly workarounds that can help individuals tap into their retirement funds early. Below, we will discuss different ways you can gain access to your 401(k) or IRA funds for an early retirement.

How To Access Your Retirement Funds Early

Route I: Paying The Penalty

In most cases, if an account owner makes a withdrawal from his or her retirement funds before the age of 59 ½ years, it will be considered an early withdrawal and result in an additional tax penalty of 10%.

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https://www.forbes.com/sites/forbesfinancecouncil/2018/03/26/plan-to-retire-early-how-to-make-it-work-with-traditional-retirement-funds/