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Message
re: Rule of 55
Posted on 2/23/26 at 10:05 pm to GeauxTigers777
Posted on 2/23/26 at 10:05 pm to GeauxTigers777
"I think the buyout makes sense if your numbers only drop $350 per month. That’s 35 years of pension (until you are 90) in lump sum without considering future gains (highly recommend investing it), but also have to include tax implications for this year. Also, does your pension have a cost of living adjustment? I would imagine it does, or these numbers don’t make much sense from the employee side."
Fairly certain I do not have a COLA. Will call tomorrow to find out. My plan for the $150k is to use 50k to payoff some things and 50k as a down payment for land.
Fairly certain I do not have a COLA. Will call tomorrow to find out. My plan for the $150k is to use 50k to payoff some things and 50k as a down payment for land.
1
Posted on 2/24/26 at 6:57 am to Pockets
$150k Buy out is most advantageous if invested and/or used for necessary expenses so you can delay 401(k) withdrawals. Unless the things you plan to payoff are high interest, that's not ideal use. If you can use the $150k to delay 401(k) withdrawals it could be really useful to fund gap years before 59.5 and facilitate Roth conversions. You have a few years to do conversions before 63 when income counts against IRMAA.
I'd be very reluctant to lock it up in a land purchase which is relatively illiquid, often slow growth not to mention taking on additional debt.
I'd be very reluctant to lock it up in a land purchase which is relatively illiquid, often slow growth not to mention taking on additional debt.
This post was edited on 2/24/26 at 6:58 am
Posted on 2/24/26 at 7:18 am to TorchtheFlyingTiger
"$150k Buy out is most advantageous if invested and/or used for necessary expenses so you can delay 401(k) withdrawals. Unless the things you plan to payoff are high interest"
I am not delaying withdrawals from my 401k. I am using the Rule of 55. Yes paying off some high interest loans.
I am not delaying withdrawals from my 401k. I am using the Rule of 55. Yes paying off some high interest loans.
Posted on 2/24/26 at 7:41 am to Pockets
You probably want to Consider at least delaying first 401(k) withdrawal until next year. This year you're going to have partial year of working income, wife's income, plus pension plus $150k. Any 401(k) pull is stacked on top of that at your highest marginal tax rate. If instead, you live off the $150k your 401(k) withdrawals will likely be taxed at a lower rate in 2027 and beyond when you only have pension, wife's income and withdrawals.
This post was edited on 2/24/26 at 7:50 am
Posted on 2/24/26 at 8:01 am to Pockets
quote:To frame it another way, it doesnt make much sense to take withdrawals out of tax advantaged 401(k) just to invest remainder of $150k buy out in a fully taxable account. Why not spend down the $150k in meantime instead of pulling from 401(k) and realizing taxes instead of waiting until other income sources are lower and pay less taxes?
I am not delaying withdrawals from my 401k. I am using the Rule of 55.
Also, taking SS at 62 is usually suboptimal be sure to research SS strategies before making that choice.
Posted on 2/24/26 at 8:13 am to Weekend Warrior79
quote:
If you are retiring, would it make sense to roll it over into an IRA away from your current company?
Why assume this? Move it if not happy. Leave it if you are.
Mine is still at my old company. I am content with the choices there. My wife had several at different companies and we consolidated hers into 1 Vanguard account.
Posted on 2/24/26 at 9:53 am to KWL85
quote:
Why assume this?
It’s why my post was a question. I was asking/curious.
The assumptions that I based my assumptions on are the fact that employer based retirement plans “typically” have higher fees and less options than you would see in an IRA with a bank/brokerage.
Posted on 2/24/26 at 10:03 am to TorchtheFlyingTiger
quote:
use the $150k to delay 401(k) withdrawals it could be really useful to fund gap years before 59.5 and facilitate Roth conversions.
keep in mind all his current retirement is already in Roth.
Posted on 2/24/26 at 10:03 am to notsince98
quote:
The rule of 55 applies to traditional 401k, not a Roth 401k.
Not true. It applies to Roth 401K. I used it when I retired at age 56.
In my case it was a lump sum distribution and I had some Roth some Trad. You will not pay a tax penalty if you use Rule of 55, but you will be taxed on any growth in the Roth at normal rates if you take it before age 59.5
I stayed retired for about 4 years then got a work from home job. I am taking 72t withdrawals from one of my rollover IRA's. I have to keep doing that for another 17 months until I finish my 5 year series of substantially equal payments.
Posted on 2/24/26 at 12:47 pm to notsince98
Did OP say it was all Roth?
I think that was to @oneg8rh8r who went on to contradict himself saying company match and associated growth were traditional.
I think that was to @oneg8rh8r who went on to contradict himself saying company match and associated growth were traditional.
Posted on 2/24/26 at 12:54 pm to Weekend Warrior79
quote:
would it make sense to roll it over into an IRA away from your current company?
Not if intending to use Rule of 55. That only applies to plan w employer you leave during or after year you turn 55. It doesn't apply to an IRA.
Posted on 2/24/26 at 1:01 pm to TorchtheFlyingTiger
"Did OP say it was all Roth?
I think that was to @oneg8rh8r who went on to contradict himself saying company match and associated growth were traditional."
I only have one traditional 401k. None of my investments are in a Roth.
I think that was to @oneg8rh8r who went on to contradict himself saying company match and associated growth were traditional."
I only have one traditional 401k. None of my investments are in a Roth.
Posted on 2/24/26 at 2:16 pm to Pockets
From my experience, one of the largest possible drags on your assets is taxes. You will definitely have to pay them, but the kind of figures you discussed above would keep you in your wife in 12% territory, not 22%. If you use the rule of 55 you are going to have mandatory 20 % withholding. If you roll over to an IRA you will not have that, you can choose how much to take out. If you need some of your money before you reach 59.5 you can use 72T withdrawals and avoid the penalty. One of the best returns you can get on your assets is paying 12% income tax instead of 24%.
Posted on 2/24/26 at 2:59 pm to CharlesUFarley
I do understand that using the RO55 I will have a 20% tax withholding on my checks. The reason I do not want to use the 72t in my situation is I don't want to be subjected to SEPP's(substantially equal periodic payments). I would like to customize the amounts I withdraw. I also don't think ill ever be in the 12% tax bracket. For 2026 its going to be the 24% , then should be able to stay in the 22% tax bracket.
Posted on 2/24/26 at 4:44 pm to Pockets
You could adjust wife's withholding and.pension withholding to offset the excess witholding (20%) on 401(k) withdrawals.
On other hand, consider the $150k (net $114k in 24% bracket) could fund your first 3 years of retirement with no additional tax (other than on interest). That would take you nearly to 59.5 without taping into 401k or past.it.if.you tighten finances and/or have other income or capital sources.
On other hand, consider the $150k (net $114k in 24% bracket) could fund your first 3 years of retirement with no additional tax (other than on interest). That would take you nearly to 59.5 without taping into 401k or past.it.if.you tighten finances and/or have other income or capital sources.
Posted on 2/25/26 at 11:29 pm to TorchtheFlyingTiger
What kind of things can retirees do to lessen tax burden? My first year of doing Roth conversions. I did $116k. I expect to likely have about $15-20k in Dividends. Had $17.5k for 2025. Deductions of about $34k so I'll be around $100k taxable income. Even with staying at the 12% rate on Fed, because I live in Hawaii it's another $5k+ in state taxes on top the ~$12k Fed. $17k in taxes isn't awful for that amount but I want to keep more of it 
Posted on 2/26/26 at 8:14 am to Pockets
quote:
When I ask them questions about it, they don't seem to want to give any info other than, yes we have it.
Make a written request for the Summary Plan Description, Summary of Material Modifications, and any other plan documents they have that address the Rule of 55. If they don't timely provide plan documents, they can be liable for $110 a day.
I asked Google AI a couple of questions about the obligation of an ERISA governed plan (assuming this is one) to provide documents to beneficiaries. Here are parts of the responses.
ERISA requires plan administrators to automatically provide a Summary Plan Description (SPD) to participants and beneficiaries. Upon written request, administrators must provide, within 30 days, documents governing the plan (e.g., trust agreements, insurance contracts, Form 5500). Non-compliance can result in penalties of up to $110 per day.
Key Obligations and Documents
Automatic Disclosure: Administrators must provide the Summary Plan Description (SPD) and Summary of Material Modifications (SMM).
Documents Upon Request:
Within 30 days of a written request, administrators must supply:
Latest Updated SPD
Latest Annual Report (Form 5500)
Bargaining Agreement, Trust Agreement, or other documents under which the plan is established/operated
Terminal report (if the plan is terminated)
Yes, the Rule of 55 provision, which allows penalty-free 401(k) or 403(b) withdrawals if leaving a job at age 55 or older, must be included in the documents ERISA plans provide to beneficiaries. This information is typically detailed in the Summary Plan Description (SPD), covering plan features, eligibility, and withdrawal rules.
Posted on 2/26/26 at 8:22 am to Sho Nuff
I can't answer all your questions about taxes here, but one comment. I read an article that ran like 1000 simulations on doing a full conversion to roth at once vs. breaking up your roth converstions and like 95% of the simulations determined it was better to just convert everything to roth up front and take the hit.
Posted on 2/26/26 at 8:37 am to Sho Nuff
Most those dividends (if qualified) will likely fall in the zero LTCG rate (under $98900 married/joint). I'm facing similar dilemma but with a pension and part time job very little space to convert in 12% bracket. I'm mulling whether to go ahead and convert to top of 22% but that also pushes my LTCG rate to 15% on $20k+ and makes it costly to sell shares from taxable to pay tax on Roth conversion.
Recently.stumbled upon idea to reduce income in a large conversion year by utilizing 100%/bonus depreciation on an investment property. I'm not eager to get into real estate and it requires cost segregation study to determine what components can be depreciated immediately (not land or.primary structure). So, I probably wont pursue it but might be a promising strategy.
Recently.stumbled upon idea to reduce income in a large conversion year by utilizing 100%/bonus depreciation on an investment property. I'm not eager to get into real estate and it requires cost segregation study to determine what components can be depreciated immediately (not land or.primary structure). So, I probably wont pursue it but might be a promising strategy.
Posted on 2/26/26 at 8:59 am to JL
quote:
simulations determined it was better to just convert everything to roth up front and take the hit.
I've seen recommendations to convert all at once but can't see how it could be optimal if more than couple hundred thousand traditional balance. If I convert all at once it would bump my marginal bracket from 12% to 37%, LTCG from zero to 20% and trigger 3.8% NIIT.
I'm struggling to justify voluntarily paying 20-22% rate and 15% LTCG. I cant imagine a case for full conversion up to 37% making any sense.
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