I've been at a big computer company for over 16 yrs. 560k in 401(k), about 50k in debt + 100k owed on 200k house. Expect to pay it off by 2018. Currently I (49 yrs old) make 100k/yr, wife (55) makes 35k/yr. We tracked every penny last year and are now making changes to reduce expenses. I'm sick (literally) of job - need to leave pronto. May be a 10-15k bonus in late March - I'm really ready to surrender that to facilitate quicker exit.

Sooooo...Here's the plan:
1) set up IRA at local Credit Union (have been with them for 15 years);
2) give 2 weeks notice
3) upon happy exit, roll-over 401(k) to IRA, take annual dispersal via 72t of 40k for at least this year. (reducing that to minimum when securly re-employed) I know I'll be locked to this decision until I'm 59-1/2...
4) chill for 1-2 months (ok - three MAX!)
5) re-enter work force in more appropriate job [green energy? green building? non-profit, something with some social conscience] - likely for less pay.
6) Start new 401k at new job.
7) work for another 10 -12 years.
8) assess situation
9) re-retire for good....

Thoughts? Suggestions? Derisive laughter?
Thanks!

I would not touch the 401k/IRA if possible. Once you do, you will be stuck making withdrawals for 10 years. Do you have other taxable money you could use? What about a home equity loan? If not, you could just take out some money as you need it from the IRA and pay the extra 10% tax. If you really will be back to work in 3 months, you should not need to withdraw that much in that time frame, plus you have DW's income. You could try to stick it out another 2 months and use the bonus for your expenses.

If you start with the 72t withdrawals, you will be tapping your IRA for 10 years while still working and paying relatively high tax rates on your wages and IRA withdrawals.

You've been there for 16 years why not wait two more months for the bonus. Can you negotiate a severance? Even a three months severance with unemployment benefits and the bonus will allow you to manage until you find something else.

I wouldn't touch the 401K because the 72t distribution is for 5 years or 59 1/2 whichever is later.

I agree with every thing that Firewhen said - except I think you are only stuck for 5 years on a 72t.
If at all possible leave the egg alone and tough it out for the bonus..then take the 3 months to look for a better job fit. If the job is killing you....just jump....but if you can hang on for the bonus and leave the 401K intact, you will be glad you did - in fact if you do...you may not have to work anywherere for 10-12 years. 560K well invested (tax protected 401K) and blessed w/ a decent market may surprise you

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Freed at 49. You only live once - live it

I agree, leave that 401(k) -- do not do a 72(t).

I know you are not considering complete RE now, only a 'bridge' to new job but for me, even when I do RE completely, I expect to be able to draw from my taxable accounts for the first few years, then do a 72 (t) only when those resources are down to my emergency levels, and the 72(t) will then provide my needed funds.

There are actually a dozen or so penalty-free ways to get at that 401(k) prior to 59 1/2 - hardship, education, first home mortgage, disability, leave company after 55 (does NOT work for IRA, only 401(k)!), and the SEPP you are considering.

It is worth educating yourself on all the options, but once you make that SEPP call, in your circumstance, you will be locked into making those withdrawals for five years or until 591/2, whichever is LATER, and if you should somehow mess it up, the penalty can apply retroactively.

Here is a good article with some references to the specific tax code:
http://tinyurl.com/ywq8nm

What I would do is start plonking as much as I could into a cash reserve, and look for that great new job that meets your emotional requirements now, but let them know that your start date would be delayed to whatever date gives you a mini-sabatical you are looking for. With any luck, you won't even have to touch your retirement funds, until you roll them directly into your new employers low-cost environmentally aware 401(k), avoiding any chance for a costly slip-up.

I'd also get a pre-approved low cost HELOC, but don't tap it - for emergency use only.

You mentioned taking $40K out of your 401k/Rollover IRA in year one. That is way over the IRS limit for your balance and age. You'll be lucky to get out 3% at your age using a 72t. You should plan on getting no more than $15K.

Go to the IRS website for calculating the 72t withdrawls.

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The object of life is not to be on the side of the majority, but to escape finding oneself in the ranks of the insane -- Marcus Aurelius

Roll over the 401k to an IRA so you have better control and investment options on your money.

No 72t or withdrawals from the IRA.

Quit.

Dont spend any money other than mandatory food/utilities/insurance for the couple of months you're recharging and looking for work. Use your wifes income and maybe a small credit line for the must-spends.

Find new happier job.

(rest of plan looks good)

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Be fearful when others are greedy, and greedy when others are fearful. Just another form of "buy low, sell high" for those who have trouble with things. This rule is not universal. Do not buy a 1973 Pinto because everyone else is afraid of it.

I partly agree with 2b in that I don't think you're going to get $40K from a 72(t). I plugged your figures into a calculator at http://www.72t.net/Default.aspx and the best I could get out of it was $36K.

Another drawback to using the 72(t) exemption is that while you are allowed a one time modification from either the amortization or annuitization methods to the minimum method, there is no second change allowed without incurring the penalties. So, if you take a large withdrawal the first year and switch to the minimum distribution method, you're stuck with it for 10 years. There's a whole lot of what if's between here and then and you're cutting yourself off from some financial flexibility you might want/need in the future.

I can feel your pain on hatin' the job, but I think if you can stay until you get the bonus and then take your mini-sabbatical that would be a better idea than going after the dough in the 401K. Use the bonus to fund the time off, or at least minimize the financial pain.

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There is no pleasure in having nothing to do; the fun is having lots to do and not doing it. - Andrew Jackson

HCFMR, since you've already introduced yourself I moved this thread down here.

You're the guy who knows when it's time to go. It'd be great to stick it out for the bonus, but it's not worth much to you if they have to deliver the check to you at the hospital's ICU. So don't let the "nice to have" bonus hurt your health.

While a 72(t) gives you a way to tap the IRA, you do have other alternatives. As has already been suggested, the HELOC is a great way to cover your expenses for a few months, as well as a credit card for a month or two. In the meantime you'll be cutting back on expenses and searching for a new career, so you may not even have to use the 72(t). It's a nice safety net if you need it, but once you start it up it's tough to turn it off.

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Co-author (with my daughter) of “Raising Your Money-Savvy Family For Next Generation Financial Independence.”
Author of the book written on E-R.org: "The Military Guide to Financial Independence and Retirement."
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Just another thought to consider.

I would try to avoid taking money from the 401(k)/IRA also, but if you do take money out, it may make sense to consider making one withdrawal this year and treat it as a single early distribution from an IRA. You'd pay tax plus the 10% penalty, but you wouldn't lock yourself into a 10-year SEPP.

2Cor521

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"At times the world can seem an unfriendly and sinister place, but believe us when we say there is much more good in it than bad. All you have to do is look hard enough, and what might seem to be a series of unfortunate events, may in fact be the first steps of a journey." Violet Baudelaire.

As always: great insights from all.

Concensus seems to be: DON'T TOUCH THE 401(k), DUDE!

New revised plan:
1) Get Home Equity Loan (done)
2) Move 401(k) to IRA for more control
3) Negotiate exit w/ boss. Maybe get vacation owed, maybe get bonus, maybe get severence.
4) Leave the company
5) relax, study, play guitar, read Zen Bhuddism books, maybe get a little camping in...
6) Search for new gig in 2 -3 months
7) Open new 401(k) at new job...

Anyone have any thoughts on moving 560K from a 401(k) to an IRA; then opening a new 401(k) at new job? Any sense in this?

THANKS AGAIN.
You folks on this board are very helpful.

It's easy to roll over a 401k to an IRA. Figure out where you want it to go. The forms are simple and it will happen fairly quickly once they're submitted. Don't leave your 401k behind. You probably don't want to roll it over to another employers plan but; if their plan was very good and with low fees, I might consider it.

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The object of life is not to be on the side of the majority, but to escape finding oneself in the ranks of the insane -- Marcus Aurelius

I did this once -- quit a job I loathed to take 2-3 months off and then find a new one. It took me a year to find a new job, not because there weren't any out there, but because whitewater rafting, hiking, traveling, reading, visiting with friends and vegging are a lot more fun than the job search.

I'd agree with others' advice on leaving the 401(k) alone, but not just for tax / financial reasons. I'd agree because if you're drawing enough income to feel comfortable while unemployed, then you MAY be likely to remain unemployed longer.

I've had a toxic job (see above) so I know you may not be able to gut it out. If you CAN, however, then I'd hang on for the bonus (do you have vacation to help you survive?), live on wife's income for your three months' off, and allow your lack of comfortable income to spur you back to work.

Another question -- if you have health concerns, is there any way to draw disability for a period of time?

Agree with the others here on not touching the IRA. 72(t) will not yeild much even with the best case formula. Also you are locked in until age 59.5 period.

I took and ER from a previous employer and moved the 401k into an IRA. I now have a different 401k with my current employer and will roll it over into an IRA when I quit this year. DW will also roll her 401k into a separate IRA later this year.

The separate IRAs allow for flexibility in taking money out later on. It keeps them apart from each other to reduce tax confusion but you could combine any 401k into the same IRA and I don't think there would be any tax issues. You just don't want to put any non-401k money into a 401k roll over due to tax complications.

Stick around for the bonus. That chunk of cash would fund your basic living expenses for the time you are off of work. Your wife's income will also fill the gap until you find another job.

Good luck. Choose.....but choose wisely.

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Work? I don't have time to work....I'm retired.

Same here. Took a one year paid "vacation" with the intention of going right back to my old job with repriced stock options a year later. But then I realized that real life was pretty good and working really sucked!

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Be fearful when others are greedy, and greedy when others are fearful. Just another form of "buy low, sell high" for those who have trouble with things. This rule is not universal. Do not buy a 1973 Pinto because everyone else is afraid of it.

Not sure if this intended as encouragement to take the 2-3 months off or a warning. I'll take it as the former

I have no immedaite health concerns - we're both in very good shape - but you never know...

I do have some vacation time available (4 weeks!) So, I'll try to use it over the next few months to get to the bonus. By the way: the bonus isn't a sure bet. In the past it's been between $0 and $24k. Likely be in the $10k-$12k range this year - not a sure thing, though.

Thanks for the "401(k) convert to IRA; start new 401(k)" info. Sounds like the way to go.

I'll probably talk to my Director next week about a way to ease me out - maybe 8 three-day weeks to use my vacation and get me to the (possible) bonus...

Thanks all. I'll let you know what happens.

Interesting development: NO BONUSES. Our floundering company announced that no one will be getting a bonus this year (although, I wonder how well the departing-in-disgrace CEO will be compensated??) This changes things up a bit. It's likely that lay-offs are coming....I'm going to try to angle for an exit "package".... STAY TUNED...

Ah, so you work for that Megacorp. Just curious--are you in Austin? Of course you don't have to answer that, but I figure it's a good bet.

Sorry to hear about your situation; that really sucks.

Having several instances of experience on both sides of the "package," you don't want to ask for it or even give the impression you are wanting one. I suggest you take the position of "serious concern." You want to "help the company through this difficult patch." You know "it's a good company that will be stronger after all of this is over." Say all the really stupid things that make it appear you are "loyal" and expect to be a longterm employee.

It they offer a general package to everyone prior to later selective layoffs (supposedly with less generous packages), evaluate the options and decide for yourself. If you get picked for layoff, be shocked and hurt. Say how this catches you by surprise since you were such a dedicated employee. Bring up the financial hardship you'll suffer. "Beg for another bowl of gruel."

There is a certain amount of gamesmanship here. If you look like you want a package, it probably won't be as good and any upside negotiation will be gone.

Good luck.

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The object of life is not to be on the side of the majority, but to escape finding oneself in the ranks of the insane -- Marcus Aurelius

There are so many CEOs departing "in disgrace" I don't see how you can narrow the company down.

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The object of life is not to be on the side of the majority, but to escape finding oneself in the ranks of the insane -- Marcus Aurelius