2 ways to use retirement money early

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Substantial Equal Periodic Payments, or SEPPs, starting before age 59 and up to age 59 or 5, whichever is later, have a withdrawal option. While calculating your withdrawal amount can be a bit complicated, be sure to do it correctly to avoid penalties. If you choose SEPPs you will have to make 3 decisions.

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Decision 1: Choosing how to calculate the amount you charge

First, you need to choose a formula to calculate your withdrawal. Here are 3 ways to try:

Fixed amortization – usually results in the highest withdrawal amount. Once you determine the amount, it will remain the same in future years.


Required Minimum Distributions – usually result in the lowest withdrawal amount and are the easiest to calculate.


Fixed annuity – usually results in an amount somewhere in the middle and remains the same every year.

Some of your decisions may be changed in later years! Your withdrawal amount is subject to change, but only if you make certain choices in the beginning. That’s why it’s so important to be strategic and think about your long-term needs.

Decision 2: Choosing a method to determine your life expectancy

The decision you make will affect the amount of your SEPPs as well as the strategies available to you in the future. You can choose from 1 or more of these tables, depending on your beneficiary designation and the calculation method you choose.

Single life expectancy table- usually results in the highest withdrawal amount.


Uniform Life Table- Usually results in the lowest withdrawal amount.


Joint life and last survivor table – usually results in an amount somewhere in the middle unless the beneficiary is more than 10 years younger than the owner, then it becomes the lowest withdrawal amount.

Decision 3: Choosing your interest rate

If you chose the fixed amortization or fixed annuity formula, you’ll need to choose an interest rate. You can choose whatever rate you want, as long as it doesn’t exceed 120% of the federal rate applicable mid-term. Just keep in mind that the higher the interest rate, the higher the withdrawal amount.
For more information on how to calculate SEPPs correctly, visit general questionThe IRS can help.
Remember: If you miss a payment, it will affect your current SEPP and retroactively penalize any other SEPP before 59½, so always be sure to pay on time.
55 may become your new favorite number. If you want to retire early, this can be a great option. The Rule of 55 is simple: If you leave your employer the year or after you turn 55, you can start taking withdrawals for your 401(k) from your 403(b) from that employer. Huh.
The Rule of 55 is often seen as a more flexible, easier-to-implement alternative to SEPP for those who qualify. Take a closer look at what this means:

Because the Rule of 55 only applies to money in your most recent employer plan, consider consolidating all of your qualifying assets into that plan before leaving your job.

Consider whether distributing eligible employer stock for net unrealized appreciation will allow you to access the money you need while spending less on taxes. Once you start a withdrawal, you can only do so until the end of that calendar year or you will have to wait until you have completed another qualifying program.

The IRS allows you to make any number of withdrawals in any amount, but your employer may have specific requirements for withdrawal times.

Do you work in the public sector? You may still be able to access your money before the age of 50.

You should also consider waiting until the year after you retire to start making withdrawals. That way, you won’t have employment income and retirement withdrawals in the same tax year, potentially reducing your income and tax burden.

If you want to work part-time after retirement somewhere other than your previous job, you can! Part-time work will not affect your ability to take advantage of the Rule of 55.

Whichever way you decide to retire early, one of our financial advisors can help you choose the best option for you.

While Vanguard Personal Advisor Services can guide you on the SEPP and Rule of 55 and considerations that may apply to you, we recommend working with a tax advisor to understand how these options will affect your tax situation. and calculate your SEPP, if applicable. .

All investments are subject to risk, including the potential loss of the money you have invested.

Advice services are provided by Vanguard Advisors, Inc., (“VAI”) a registered investment advisor, or Vanguard National Trust Company, a federally chartered, limited-purpose trust company. The services provided to clients who elect to receive ongoing advice will vary depending on the amount of assets in the portfolio. Please review the Form CRS and Vanguard Personal Advisor Services brochure for important details about the service, including its asset-based service level and fee breakpoints. VAI, Vanguard Group, Inc. is a subsidiary of, and an associate company of Vanguard Marketing Corporation. Neither VAI nor its affiliates guarantee protection against profits or losses.

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