NEW IRS RULE COULD HELP EARLY RETIREES
New rule could help early retirees. The Great Resignation is translating into a flood of early retirements. When the decision to retire has been made suddenly, there are challenges and roadblocks that can cost the retiree dearly. Many of these challenges are dependent on what age you are when you leave employment. 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’re saddled with for life. Further, you can’t sign up for Medicare until age 65. Perhaps the biggest age challenge for many early retirees is that you can’t withdraw your own retirement savings until your 59 and a half years old. Unless you qualify for one of the exceptions, any withdrawal from your IRAs and 401(k) accounts before this magic age will result in a 10% tax penalty on each withdrawal. New rule could help early retirees.
The good news is that the the IRS has decided to make this penalty less troublesome. This may be due to the Covid pandemic and the exceptional economic circumstances facing the American people at this time. Retirees who are leaving the workforce before age 59 and a half will now be able to take out more money each year without incurring a 10% hit. And these changes are all because of assumptions the IRS uses in calculating mortality and interest rates. That’s what they say anyway, but the reality is that the United States has never seen the number of mass resignations that it has in the last several years. This can be attributed to the pandemic, and the impact of Covid on the workplace, the health risks involved, and that fact that when it forced people to shelter, it gave them time to think about their life, working from home in a new job, possibilities that they probably never imagined before. Retirees who have tax debts can always ask us about the IRS Fresh Start Program.