You Can Retire Early

Live off of your retirement income before age 62

can take
out, penalty-free.

Five years or 59-1/2. Suppose, for example, John Smith retires at age 48 and wants to tap his IRA without paying a penalty. He does not have to start by taking out 1/36 of his account in year one and gradually draw down the entire account over 36 years. Instead, he can keep up his SOSEPP for five years or until age 59 1/2,
whichever comes later.

John starts his withdrawals at age 48, so he must continue until 59-1/2. If Tracy James starts at age 56, she must continue until at least age 61. Once you’re past both the five-year and age-59-1/2 hurdles, you can take out as much or as little as you’d like, without paying a penalty.

More or less. The SEPP rules permit you to decide among various methods, which result in different distribution amounts.

Minimum distribution amounts. You may want to take a relatively small amount from your IRA or 401(k), leaving as much as possible in the account to support a long retirement. In that case, you might take 1/36 of the account in year one, if you have a 36-year life expectancy, about 1/35 of the account in year two, etc.

Maximum distribution amounts. The Internal Revenue Service permits you to use an “amortization” method instead. In essence, you project how large your retirement account will grow over the years and take your SOSEPP based on that projected appreciation. Depending on your age and on the level of interest rates in effect at the time you start a SOSEPP, you might be able to take two or even three times as much from your retirement account, penalty-free, as you could with the minimum distribution method. (The IRS also permits an “annuitization” method, but it’s seldom used.)

Using recent interest rates, for example, a 50-year-old using the minimum distribution method would be able to withdraw nearly $11,000 a year from a $500,000 IRA, without owing a 10% penalty. With amortization, he could take out $23,000 or so, penalty-free.

Your accountant or financial adviser should be able to walk you through the calculations so you can choose the appropriate method for SOSEPP withdrawals. Be careful, though.

“Contributing just $1 to an account that has begun these distributions could trigger retroactive penalties plus interest,” says Cortazzo. Withdrawing more or less than the permitted amount can also trigger penalties. Therefore, you should be confident that you’ll maintain your SOSEPP precisely until you pass both five years and age 59-1/2.

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  • Samir

    The rules about retirement accounts can be very confusing. Thanks for helping to clarify.

  • http://mckendrickflora@yahoo.com I would like to make a load for car i have five years to work and I am 60 years old. what should i do..flora
  • http://www.facebook.com/jonymor Johnny Moore

    I was very impressed by Tyrese  Gibson’s speech on the Trumpet Awards. It was a very motivating speech. The kind of speech that will help one to master the fear of taking on the challenge of starting a small business. Networking with positive people fires up that yes I can feeling.

  • GTG

    This tips is so informational….

    • http://www.yfsentrepreneur.com YFS Magazine

       Thanks!

  • Askmysecretary

    I see this as a key factor that hold so many would be entrepreneurs back is overcoming their own fears. We’ll talk our own selves out of our dreams

    • http://www.yfsentrepreneur.com YFS Magazine

       Great points — we are our biggest “competition!” Be fearless.

  • Edwardboyd77

    Without a plan A<B<c it is reaLLY HARD TO take risk ! Careful thinking seems to always help in making the best choicesat risk taking ventures!

  • Gumdrop Swap

    Does the potential reward outweigh your risk? YES! This article confirms what I’ve been thinking for the next step for my business, http://GumdropSwap.com.

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       Awesome!

  • Brian S Arnold

    Very good information. Will help me make some solid decisions for my business.

    • http://www.yfsentrepreneur.com YFS Magazine

       Awesome Brian! Much success to you! – Erica Nicole

  • http://www.facebook.com/lashandad La-Shanda A. Davis

    God knew that business owners needed this great information to renew, enpower, and move each of us to the next dimersion.

    • http://www.yfsentrepreneur.com YFS Magazine

       I’m glad my article resonated! Thanks La-Shanda!

  • Khyladex

    This is good information. Wish I would have had it in the beginning of starting my business.

    • http://www.yfsentrepreneur.com YFS Magazine

       Thanks!

  • http://twitter.com/EarfulENT Earful Entertainment

    this was intresting!

  • http://twitter.com/YFSMagazine YFS Magazine

     Thanks Treena, for your feedback. A Plan B can be applied to internal resources and management of any suppliers, vendors or partners you may have. Change in business is inevitable — so having a solid plan and option base will help you navigate “the unexpected” with ease.

  • http://www.yfsentrepreneur.com YFS Magazine

     Thanks Ransford!

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     Thank you Tiffany!

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     Thanks Tracey!

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     Martice — I’m glad my tip was helpful – Erica Nicole

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     You’re welcome Adrian.

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    Thanks for the small business love for YFS Magazine! Stay inspired. – EN

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     Thank you! We love you too – small business rocks!

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     You’re welcome! Thanks for the feedback. EN

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     Very true! EN

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     True. Experiment. Build. Refine – and repeat! EN

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     Thanks.

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     Absolutely! Be inspired.

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     Great point of view.

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     You’re welcome!

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     Thanks Eric.

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     Thanks for the feedback Vicki.

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     Nice! Yes – if only we could all know this from day one. Thanks for the feedback Michael.

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     Thanks.

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     Good book recommendation!

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     Thanks Cherry!

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    Thanks Justina.

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     Awesome! Glad it was helpful Brian!

  • http://www.yfsentrepreneur.com YFS Magazine

     Many startups combat issues like this via crowdsourcing platforms. Also when you bootstrap in lieu of traditional financing you must employ your dolllars to work even harder. Sticking to a minimum viable product (MVP) and testing often will ofset capital drain in most circumstances. Good points.

  • http://www.yfsentrepreneur.com YFS Magazine

     Thank you!

  • http://www.yfsentrepreneur.com YFS Magazine

     You’re welcome!

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     Yes!

  • http://www.yfsentrepreneur.com YFS Magazine

     Take small calculated risks at first and seek “qualified” advice on how to minimize them. Sometimes we are so close to the trees we can’t see the forest.

  • http://www.yfsentrepreneur.com YFS Magazine

     Be fearless. Don’t be afraid to fail — it’s only data points to begin more intelligently.

  • http://www.yfsentrepreneur.com YFS Magazine

     Very true. It should be in the manual! :-)

  • http://www.yfsentrepreneur.com YFS Magazine

     Thanks.

  • http://www.yfsentrepreneur.com YFS Magazine

     Focus on delegation – hire interns to free up your time so you can spend more of it growing your business.

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     Awesome! Glad it was helpful.

  • http://www.yfsentrepreneur.com YFS Magazine

     Yes. You should focus on selling and shipping — but long term you must scale. Look for contract manufacturers in your area via ThomasNet and schedule site visits. As long as it’s just you — you limit production capability.

  • http://www.yfsentrepreneur.com YFS Magazine

     Congrats! Be fearless.

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     Yes. Good points.

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     Risk is inevitable – embrace it.

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  • http://www.yfsentrepreneur.com YFS Magazine

     Thanks Regina.

  • http://www.yfsentrepreneur.com YFS Magazine

    Yes. Good points. Go for it!

  • http://www.yfsentrepreneur.com YFS Magazine

     Thanks Antonio.

  • http://www.yfsentrepreneur.com YFS Magazine

    Thanks Drew.

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  • http://www.yfsentrepreneur.com YFS Magazine

     Thanks Garnett!

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     Awesome! Thanks for the feedback.

  • http://www.yfsentrepreneur.com YFS Magazine

     Thanks for the feedback.

  • http://www.yfsentrepreneur.com YFS Magazine

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     Glad it was helpful.

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     You’re welcome Sharlene!

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     Thanks!

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     Thanks Garnett!

  • http://twitter.com/kimv_duncan Kim Duncan

    i m pleased to get this insight for me and my business at this time.

  • Kristina Nelson

    Great information for business risk and personal risk.

  • http://www.diplomacyandbusiness.com/ Business Etiquette Training

    Informative post.You have shared really great post regarding business risk & personal risk.I would like to read your more updates.Keep them coming.

  • http://profile.yahoo.com/VUQ3BZXSV2F5S3YKNCZYS4BYYM Natika Gatson

    I’ve taken so many risks in the past & ended up with nothing so I am determined to be better prepared in what I need to do. 

  • http://twitter.com/FrancesDoughert Frances Dougherty

    Thank you for this insight.  I have been questioning myself for the past week if I wanted to continue with one business that I just started and if it was worth the risk; this article truly made a difference for me. 

  • Brenda Bradley62

    Finally, the information I have been needing!

  • Phoebe

    This is another wall.  The money aspect and the risk aspect of starting a business.  I want a business, but my decision is how bad do I want and what am I willing to sacrifice to make it a success?  

  • http://twitter.com/wlmediallc WLM

    The way I see it, you only live once. Play smart and play hard.

  • Sacharaniartistry

    I like the quote, “The more you know, the less you fear.” This is true. I’m adopting this it my list of life lessons.

  • Brett Patton

    Great information working on my plan c and d to minimize my risk

  • Sandra Butler

    Thank God for this valuable information…..

  • Sandra Butler

    The bigger the Risk the greater the reward….

  • Sandra Butler

    Determine how much risk you’re willing to take…

  • Sandra Butler

    Read this tip 10times.

  • Misha

    Extremely useful and applicable information! I really enjoyed it!

  • Misvista

    Excellent information and thought provoking comments. 

  • http://twitter.com/FrancesDoughert Frances Dougherty

    Great article on risk and I am assessing currently the risk I want to take with my business within the next 5 years.  

  • L morton

    Awesome!

  • Cherkitawilliams

    This was a great article. I like the idea of having backup plans for the back up plan and then something else!! A great way to cover all of your bases and keep yourself protected!

  • Reaganm

    No Guts..No Glory!!!

  • http://www.facebook.com/people/Antonio-Jones/659291571 Antonio Jones

    Great information! Interested in finding out more about the YEC Urban organization. Sounds like something I would like to be involved in!

  • Richard Jackson

    This is great information. I’m glad I decided to visit BE’s website again. I enjoy the comments from all of you fellow go-geters

  • http://twitter.com/sociallyahead Lynn Cooper

    Erica- Thank you for sharing your insight!

  • http://twitter.com/SmoothheadTony tony harrison

    I put my self out on the big net now im on the move . in art school at visual arts east 23thd st new your the words BRAND- AND ENTREPERNEUR never-ever -ever came across the lips of any teacher Ionly found out what it all was about from black/e/m thank you. now i have a new life “A LIVEING MASTER ARTIST looking to move up and help some one els. thank you http://www.lightbulb-head.com

  • Selfdunn

    Open dialogue about business in general sparks ideas, motivates execution, trains the unfocused mind to stay diligent  and always think about growth!

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  • Jonathanpope71

    Great information.

  • http://www.facebook.com/profile.php?id=100000201694876 Aradia Knight

    You were on point with this one!

  • http://www.facebook.com/profile.php?id=100000201694876 Aradia Knight

     You were on point with this!

  • http://www.facebook.com/profile.php?id=100000201694876 Aradia Knight

     You were on point with this!

  • http://www.facebook.com/profile.php?id=100000201694876 Aradia Knight

    You were on point with this one!

  • Tia Jones

    This was great. I think fear is the reason most businesses fail.

  • Bobby

    Great article!!!

  • Bobby

    Great article!!!

  • http://rtopartnership.com.au/ Click here

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  • http://www.facebook.com/profile.php?id=1263115937 Donna Love Taylor

    A fear of succeeding sometimes takes others persuations to show you your potential.