59 ½ Rule — How to Get to Your Money Before ‘Retirement Age’


By Dr. Jim Dahle, WCI Founder

If you read the fine print on your IRAs, 401(k)s, and 403(b)s, you’ve probably discovered that the government wants you to use the money for retirement and also that the government feels that retirement shouldn’t start before age 59 ½.


But what if you want to retire before age 59 ½? How can you get to your money without that pesky 10% penalty that comes with taking money out before age 59 ½?

Here are some things to think about if you want to withdraw your retirement money before you turn the age when the government thinks you should retire.






8 Tips for Getting to Your Money Before Age 59 ½


#1 Burn Your Taxable Account First

Your taxable account is your least tax-efficient way to invest. Yes, it has its tax benefits, but these pale in comparison to IRAs and 401(k)s, especially when you consider the additional estate planning and asset protection benefits of a true retirement account. Most experts agree that an early retiree ought to hit up their taxable account before diving into their tax-protected ones for a number of reasons. First, you don’t pay any tax on your basis, which might be quite high. Second, long-term capital gains are only taxed at 0%-20%, likely much less than your IRA withdrawals. Last, it leaves your IRA money to continue to compound at tax-free rates.


#2 Drain That 457

A 457(b) is a tax-protected account available to many docs who work for university hospitals. If you have a 403(b), you ought to look and see if you have a 457 too. It allows you to squirrel away another $23,000 a year [in 2024] into a tax-protected account. Its biggest downside is that the money is technically subject to your employer’s creditors. But that comes with several upsides. First, it gives you a tax break just like a 401(k) or 403(b). Second, it isn’t subject to YOUR creditors. Lastly, you can raid it as soon as you separate from your employer without having to worry about the age 59 ½ rule. In fact, you probably should since it isn’t quite as separate from your employer’s money as your 403(b) account is. If you don’t want to spend the money, you can also roll it into an IRA. That, of course, makes it subject to the Age 59 ½ rule, so don’t do it if you want to spend the money before then.

More information here:

14 Reasons to Retire Early


#3 Take Advantage of the SEPP Rule

The Substantially Equal Periodic Payments (SEPP) rule is the little-known exception to get into your IRA as soon as you retire. You basically “annuitize” your IRA from the time you retire until 59 ½. Your life expectancy is calculated, and you then must take out an equal amount each year equal to the balance of the IRA divided by your life expectancy. Once started, you must continue to take these withdrawals for at least five years or until age 59 ½. When you do this, you DO NOT have to pay the penalty (but, of course, you do have to pay taxes due on a tax-deferred account).


#4 Don’t Forget the Exceptions to the Age 59 ½ Rule

Per the IRS, you can take out the money without paying the 10% penalty for the following reasons:

  • Unreimbursed medical expenses > 7.5% of your Adjusted Gross Income (which may not be that high if you’re retired)
  • Pay for medical insurance
  • Disability
  • Inherited IRAs (if your parent leaves you their IRA, you can take out the money before you get to 59 ½)
  • Qualified Higher Education Expenses (for you, your kids, or your grandkids)
  • A first home. Keep in mind the IRS definition of a “first home” is that you haven’t owned one for the last two years. Also, it doesn’t have to be YOUR first home; it can be your kid’s or grandkid’s first home too. See how this works? You pull out $10,000 from your IRA to pay toward their home, and they gift you $10,000 for Christmas. No 10% due. Ethical? Perhaps not. Legal? Certainly. Keep in mind there is a $10,000 limit
  • New child or adoption ($5,000 limit)
  • IRS levy
  • Reservist distribution: A military reservist can withdraw money while activated without paying the 10% penalty
  • Terminal illness
  • Thanks to Secure Act 2.0, if you’ve been the victim of domestic abuse, you can take out up to $10,000 or 50% of the balance, whichever is less, out of an IRA or a 401(k) without having to pay that 10% penalty. You can also repay the money for a period of three years. This begins in 2024.

Note that the rules for IRAs are slightly different from those for 401(k)s and other qualified plans.


age 59 1/2 rule exceptions to 10% penalty


#5 Don’t Forget the Stealth IRA (Your HSA)

After age 65, a Health Savings Account can serve as just another IRA. Withdrawals from that HSA for qualified medical expenses are always tax and penalty-free.

More information here:

How I Went from a Negative Net Worth in My 30s to Early Retirement


#6 Roth IRA Contributions

Unlike traditional IRA contributions and earnings on either type of IRA, all contributions to a Roth IRA can always be taken out tax- and penalty-free. In fact, some people even use their Roth IRA as an emergency fund initially because of this. This applies even to Backdoor Roth IRAs, which is the only way most practicing physicians can make these contributions. However, I would be hesitant to touch a Roth IRA any earlier than you must. Those tax- and penalty-free distributions are tempting, but keep in mind that in terms of maximizing your estate, the Roth IRA is the LAST account you would want to touch. A stretch IRA is super valuable to your heirs.


#7 401(k) Loans

age 59 1/2 rule penalty free

All right, I can’t really recommend this one.  The problem with a 401(k) loan is that you have to pay it back immediately if you separate from your employer, which is kind of the point of retirement. But it does allow you access to your money before age 59 ½ . . . as long as you keep working at least part-time.

More information here:

Are Physicians Who Retire Early Abusing the System That Made Them Rich?


#8 Cash Value Life Insurance

This is another one I can’t recommend. If you were suckered into a cash value life insurance policy years ago and it now makes sense to keep it (as it often does AFTER 10-20 years), the cash value can be accessed to pay for early retirement expenses without any concern about taxes or penalties. Life insurance salespeople LOVE to point out this benefit of their policies. Despite this benefit, life insurance is still a lousy investment due to the high fees, poor returns, and overly expensive insurance components, so don’t go buy a policy to fund your early retirement. You’re likely far better off with a plain old taxable account invested in index funds. Don’t mix insurance and investing.

What do you think? When do you plan to retire? What resources will you use first in retirement? Comment below!

[This updated post was originally published in 2011.]

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