DON’T Rollover Your 401k: I’m 55 with $1,500,000 in Retirement Savings: Can I Retire?
As you approach retirement age, navigating the complexities of retirement savings becomes paramount. Decisions made at this stage can significantly impact your financial security. One common issue many soon-to-be retirees grapple with is whether to roll over their 401(k) into an Individual retirement account (IRA) or keep it as is. If you’re 55 years old with $1,500,000 in retirement savings, you might be asking yourself: Can I retire? Let’s delve into the intricacies of 401(k) rollovers and explore your retirement readiness.
The 401(k) Dilemma
When considering retirement options, one of the most popular decisions individuals face is whether to roll over their 401(k) into an IRA. While rolling over can offer increased investment options and potentially better management strategies, it’s crucial to assess whether it’s the right move for you.
Reasons to Think Twice Before Rolling Over:
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Access to Funds: One significant advantage of leaving your money in a 401(k) is that you may have easier access to your funds at age 55. In general, if you leave your job during or after the year you turn 55, you can withdraw money from your 401(k) without incurring a 10% early withdrawal penalty. This flexibility can be advantageous for those considering early retirement.
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Creditor Protection: 401(k) accounts typically offer stronger protection against creditors compared to IRAs. If you’re concerned about potential legal issues or debts, maintaining your savings in a 401(k) can provide added peace of mind.
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Loan Options: Some 401(k) plans allow you to borrow against your balance, while IRAs do not offer this feature. If you anticipate needing a loan in the future, keeping your funds in a 401(k) might be preferable.
- Investment Choices: While IRAs generally provide a broader range of investment options, some 401(k) plans have excellent investment choices with low fees. Evaluate your current 401(k) to see if it includes high-quality, low-cost funds that align with your retirement strategy.
Assessing Your Retirement Readiness
With $1,500,000 saved, you may feel confident about your ability to retire. However, retirement isn’t just about how much money you have; it’s also about your lifestyle, spending habits, and financial strategy.
Key Considerations:
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Monthly Expenses: Calculate your projected monthly expenses in retirement. Consider housing costs, healthcare, travel, and day-to-day expenditures. Understanding your cash flow needs will help determine whether your retirement savings are sufficient.
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Income Sources: Beyond your 401(k) savings, evaluate other income sources. Will you receive Social Security payments? Pensions? Rental income? Combining multiple streams of income can provide a more secure retirement.
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Withdrawal Strategy: Plan a sustainable withdrawal strategy. Financial experts often suggest a safe withdrawal rate of around 4%, which means you could expect to withdraw approximately $60,000 per year from your $1,500,000, in addition to any other income you may receive.
- Longevity and Healthcare: With people living longer, it’s critical to plan for unexpected healthcare costs. The average couple retiring today may need well over $250,000 just for medical expenses. Factor in longevity risk and protect yourself from outliving your savings.
The Bottom Line
At 55 with $1,500,000 saved for retirement, you’re in a strong position. However, before making a significant move—like rolling over your 401(k)—consider the pros and cons carefully. Keep your options open and utilize the unique benefits your current 401(k) might provide.
Consulting with a fiduciary financial advisor can also be beneficial to help you develop a personalized retirement strategy. They can guide you through key decisions, including whether or not to roll over your 401(k), based on your unique financial situation and retirement goals.
Ultimately, retirement is about more than just accumulating savings—it’s about building a holistic financial plan that allows you to enjoy your golden years with confidence and security. With thoughtful planning and informed decision-making, you can turn your $1,500,000 into a comfortable, fulfilling retirement.
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401k has legal protections. Some 401k also have the ability for self directed limited brokerage option (No ETNs, and no Call/Put Options permissions)
Great video!
Is a Brokerage Link account attached to your 401k considered an IRA or 401k.
Do the same rules apply if you wanted to retire at 50 instead of 55?
That math is not adding up. If she earns 4% a year off of 1.5m, that means her investment earns 60k that first year. But she takes out 70k for expenses, so the balance should be lower by about 10k a year. How does her balance only drop by $1 after 4.5 years? You might be adding the half year of investment earnings (around 29k) at the end of the 4.5 years but not deducting half year of expenses.
This should be a video about Rule of 55 vs 72(t) distributions
Yep, little known fact that 401k can be withdrawn without the 10% penalty at age 55.
Dude can’t do simple math. It’s like picking a guardian animal as fox to your chicken coop lmao.
Everyone talks about ROLLING OVER the ROTH, but no one talks about the TAXES to ROLL OVER.
I am allowed to withdraw from inactive 401k at 55 without paying penalty? If I am not currently working. I got 3 different 401k accounts from previous jobs.
I have 401k with my employer. I got laid off and I am 55 year old. Company is giving me 6 month of severance pay (paid Bi-weekly). Am I able to utilize the rule of 55 now or do I have to wait for 6 months (after my severance pay ends)?
When using the rule of 55 can i withdraw any amount any time i need or does it need to be a fuxed periodic payments like 72T rule
Depending on your 401k plan rules and their investment choices, it's usually better to roll over to an IRA and use 72t to pull SEPPs from the IRA for 5 years or till 59.5. For a 1.5 million ira, you can take 75k out a year due to the new 5% calculation rule. However if you have more time before retiring to plan (5+ years), rolling over to Roth using a Roth Ladder will give you the most flexibility.
Great points
Damn good video, thank you. that the most logical explanation and walkthrough. I’ll be in a similar scenario at 55.
Almost 60 years old with 20 million in 401k. I won't need this much to retire, I live a pretty simple life but live on approximately 250k per year. Is there a smart way to minimize taxes if I wanted to gift a portion to each of my two children? Same question for if I set up a foundation? I'm interested in keeping 25% for my retirement and gifting 25% to each child and 25% to the foundation.
You could use a roth conversion ladder to access the money earlier.
It is crucial to have several years of living expenses (such as cash a Roth IRA) if you are planning on retiring early.
In this example, if this person had 5 years of living expenses outside of her 401K when she retired, she could have immediately rolled her 401K into an IRA and started doing Roth conversions.
Also be clear about what your 401(k) plan withdrawal rules are. Some plans force you to withdraw all of your assets and don’t allow you to come back every year for partial withdrawals.
Awesome. If I may how do you account for inflation long term? I would guess that you assume that a better than 4% long term return and that helps offset inflation? Thanks.
I have traditional, Roth and after tax (post 1984?) contributions/earnings in my 401k. Can I roll just the Roth and after tax parts to a Roth IRA. This way I can take post 55 distributions from the 401k and not worry about part after tax, part Roth distributions?
A 10% penalty for early withdraw of an IRA or 401K is not a issue before age 59.5 if you split the 401K into 2 separate IRAs and schedule a 72t distribution over the next 4.5 years at $70K a year from one of the IRAs. You can be taking annual $70K distributions from that IRA while it's still growing at 4% (or higher depending on investments in there) and actually making out ahead. In addition, the second IRA will be growing as well with no drawdown.
If the 401k plan only allows for a one-time penalty free withdrawal, how would you plan the early retirement? Thanks for the video!
going to throw a flag on the play Drew. She should keep about $375k in her 401k and roll the rest into the IRA when she does retire. That way the IRA is growing more so sooner than with the limited choices within her 401k. but that's me and that is our plan in Jan 2024 when we pop smoke 🙂
So what are some alternatives if you want to retire at 55-56? Instead of rolling over into IRA, is there a better option other than that to avoid the penalty before you get to 59.5? I’ve got 401k and lump sum pension I could do.
Good advice on stopping the roll over until 59 1/2. Will she be looking at an RMD tax bomb when she turns 72?
my question is a little different. We are planning on an early retirement and were originally thinking of utilizing a 72T but obviously rule of 55 generally offers more flexibility. We don't have enough really to be secure in an early retirement with only our savings and 401k. Does the IRS allow for us to transfer funds from our traditional IRA into our 401k while still working and once 55, retire and use the combined asset in our 401k?
This only works if "the plan" allows distributions. My company's plan is not in the distribution management business. As soon as you decide to take $1 you gotta take it ALL out. They will split it between a distribution and rollover but it all needs to come out in one shot. SO CHECK WITH YOUR PLAN MANAGER BEFORE COUNTING ON DREW'S SUGGESTION.
I have $3.6 million in 401k trad. It’s too much, I’m going to start to rollover , but can’t make a dent since it grows $300 k a year, if I rollover $150 k, it’s still growing. Rmd is going to be too much. I need help.
Taxes? Quite a deceptive rosey picture!
You mentioned at the end about other factors. Inflation is a huge one that should be included. It could derail the plan over that 15 year stretch.