Take early retirement? A new IRS rule could mean more money in your pocket


The Great Resignation results in a flood of early retirements. When the decision to retire is made suddenly, there are challenges and obstacles that can cost the retiree dearly. Many of these challenges depend on how old you are when you leave your job. For example, you can’t access your Social Security until age 62, and even then your benefit will be at a steep discount that you’ll be stuck with for life. Also, you can’t enroll in Medicare until you’re 65.

Perhaps the biggest age-related challenge for many pre-retirees is that you can’t withdraw your own retirement savings until age 59½. Unless you qualify for one of the exceptions, any withdrawals from your IRA and 401(k) accounts before this magic age will result in a 10% penalty tax on each withdrawal.

The good news is that a January statement from the IRS will make this penalty a little less inconvenient. Retirees who leave the workforce before the age of 59.5 will now be able to withdraw more money each year without suffering a 10% drop. And these changes are all due to arcane assumptions the IRS uses to calculate mortality and interest rates.

Basic Principles of Substantially Equal Periodic Payments

Here’s how it works. One of the major exceptions to the 10% penalty rule is that you can withdraw from your qualified accounts (think 401(k), IRA, Roth IRA, etc.) before age 59½ if you take “substantially equal periodic payments” (SEPP) . This is often referred to as the “72


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