Wednesday, May 6, 2009

Volume 3, Issue #34

Also in Today's Issue...

What do you do if you need money right now, but you're not old enough to tap Social Security or use your retirement savings?

Well, you could go out and get a part-time job. Or borrow money against your house. Or... if you know about a little secret buried deep in the IRS code... you can use the money you've saved in your IRA and 401(k) accounts, no matter what your age, completely penalty free.

Most people think you've got to wait until age 59 to start taking money out of your IRA account or 401(k) without paying a 10% penalty. But the truth is: You can take out your savings at any age you wish, even if you are in your 30s or 40s, without paying a penalty... thanks to Section 72(t).

Of course, you have to remember any money you use now won't be there when you retire. But it is YOUR money after all, and I think you should be able to do with it what you want.

A Forbes article shows how a chiropractor, Alfonse DeMaria, took $700,000 in his IRA and converted it to a $3,000-a-month income stream. He bought himself a six-bedroom home with 269 acres in rural New York to enjoy with his family. "My kids and I can start enjoying the house now rather than 25 years from now, and it will still be here then, too," he said.

Here's how it works:

* You have to pay regular income tax - which you would have to do anyway if you waited until you turned 59 and a half.

 * You have to continue collecting your money for five years or until you hit age 59 and a half, whichever comes last.

* You have to take out your IRA money in an even series of withdrawals. (In the legalese world of the tax code, they call this a "series of substantially equal periodic payments.")

The IRS allows you to determine how much you're going to withdraw three different ways: required minimum distribution, fixed amortization, or fixed annuitization. Basically, the IRS uses your life expectancy to figure out how much you should take each year.

You should carefully consider which method to use, since each method comes out with a different number. For example, if you're 50 years old and have $400,000 in your account, the required minimum distribution method would have you withdraw about $12,000 in the first year. The fixed annuitization method would have you take out $23,000.

I know that sounds complicated, but don't worry. If you change your mind, you have a chance to switch methods.

To do this, you'll definitely want to consult an accountant. In fact, because this is the government we're dealing with here, I strongly recommend you talk with an accountant before you begin collecting ANY money through 72(t) distributions.

This method of collecting your retirement money may or may not be right for you. It depends on your situation. And you'll never hear about it from the financial companies. (Think about it: If you take your money out, they get smaller management fees!)

But I think this secret is something every American nearing retirement age should be aware of.

To a wealthy retirement,

--Dr. David Eifrig
Editor
Retirement Millionaire

P.S. If you're looking for more cash on hand, I've put together a totally free report on how you could collect tens of thousands of dollars - just for staying in your current home. It's not a reverse mortgage... And it's not a loan. There are no repayment plans and there is no interest charged.

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