Accessing Retirement Accounts Before Age 60

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I usually receive one reader question a day through my contact page. I try to respond to all of them. Here's one of them, lightly edited for clarity, from David:

I am a 27 year old single <6 year staff sergeant in the Air Force stationed OCONUS. I have been constantly investing, researching and looking for new ways to achieve my financial goals for about 3 years now.

I found your website through the Financial Samurai blog and after reading almost every post of yours I have one burning question.

You want to be financially independent at age 40, but how is that possible if you are investing most of your income in retirement accounts, i.e. Traditional & Roth TSP as well as a Vanguard IRA. From what I know, you either cannot withdraw any of that money until age 59 1/2 or be subject to an early withdrawal penalty which will make you lose a good chunk of your investments.

The only taxable account you are investing in as far as I read was Betterment, but how will that sustain you between age 40 and your retirement age? The reason I ask this question is because I want to achieve financial independence as well after I retire from the military (hopefully I can make it to 20).

I too invest in the Roth TSP (max), a Vanguard IRA (max) and a Betterment taxable account, but afterwards I pretty much have nothing left to spare. I can't see an early retirement being remotely attainable if I can't save anything or ‘enough' to add to my pension for the 17 1/2 years (retire at 42) that I will have left until I can cash out on my retirement accounts.

The Betterment account is there so I at least have a decent down payment on a place when I get out and don't have to spend the rest of my life paying off a mortgage, but what else can I do? This has been driving me crazy for a while so I thought I'd ask for some advice.

Currently I'm basing all of this on me being single at the moment and by the time I retire with no additional pay and/or someone else bringing home a second income. I hope what I wrote made sense and I look forward to any piece of advice you can give me. Thank you and I appreciate all the hard work you put in to this blog for all of us!

Early Retirement Withdrawal Options

I really appreciate the kind words David. Thanks for writing me a note. Glad you found the site through Financial Samurai. Sam has some good articles.

My financial independence plan is based on saving 50% of my income and investing those savings into low cost index funds through Vanguard and the TSP. I also invest into a taxable investment account at Vanguard.

I want to be financial independent by age 40 to give myself choices and options. As of 2018, I do not intend to stop working at age 40.

When I am financially independent and eventually stop working, I plan to live off of my taxable investments first. The dividends and capital gains from selling shares should be taxed at long term capital gains rate so my taxes should be low.

After spending down my taxable investment accounts, I will then start accessing my retirement accounts. There are several ways to access retirement funds before age 59.5 without paying the 10% penalty.

How to Access TSP and IRA Funds Before Age 60

One option is rolling over your TSP into an IRA when you separate from the service. Then you can start building a Roth conversion ladder like Root of Good explains.

You can withdraw all of your contributions to a Roth IRA tax free and penalty free at any time. Over 30 years of contributions, this may be worth over $150,000.

You can also use an exception to IRS Rule 72(t) called Substantially Equal Periodic Payment (SEPP). This allows you to withdraw funds from your retirement accounts without paying a penalty as long as you follow specific rules.

You can Google search “SEPP” or see more info here.

Here are a couple of other ideas for accessing your retirement money early from the MadFientist and the White Coat Investor.

I hope this was helpful in caging your thinking about early retirement account withdrawal strategies. Don't let the fear of accessing retirement funds dissuade you from taking advantage of the tax savings the IRA and TSP accounts provide!

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