Expert: Susan Pepsin - 1/10/2004

Question
Dear Susan,
I work in a university and participate in their 403b pension plan. I have been thinking about early retirement before the age of 59 and a half which is when I can start withdrawing money from my pension plan without penalty. If I retire early, is there anyway I can withdraw money from  my pension plan and avoid the 10% penalty  and just pay ordinary income tax on the amount I withdraw.
Thanks,
Omid


Answer
Hi Omid,

I have a couple suggestions -

The easiest thing to do is look into the "age 55 rule":
There is an exception to the 10% early penalty withdrawal from qualified plans if you are age 55 or older and are no longer working for the company.

However, if you are not yet age 55, another option is substantially equal distribution payments.  The IRS has 3 allowable calculations you can use to determine how much you can take out of your retirement account.  The amount you will be able to take out of the account is based on your account value, age and possibly an annuity factor or rate of interest.  When you set up substantially equal payments you must take the calculated amount out for the LONGER of 5 years or until you reach age 59 1/2.  You can not take any more or less than the determined amount or you can be assessed the 10% penalty on everything that has already come out as well as all future distributions.  However, as long as you stick to the calculation and take it for the necessary number of years, you can avoid the 10% penalty on all distributions.  For more info on this - see www.72t.net.

I hope this information is helpful.

Good luck on your early retirement,

Susan