Retire at 40

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L1: Retire at 40 I am looking at retiring at 40 and using my traditional IRA and Solo 401K to take early distributions from. I have a historical record of making +30%a year in these accounts. The problem I see is that I cannot get enough income out of them using the regular interest rate calculation that the IRS says to use. I want to take out $90,000 per year. Is there anyway I can use my own interest rate return for the calculation? If I use their rate calculationthe money will compound at an incrediblepace and I will never be able properly use it until age59 1/2. Does any one have a suggestion?
Steve2005-02-18 11:40, By: Steve, IP: []

L2: Retire at 40 Hello Steve:
Rev. Rule 2002-62 is real clear — you may not use an interest rate assumption greater than 120% of the mid-term AFR for either of the two months preceeding the 1st distribution. That said, locking in 20 years of distributions at relatvely low rates/amounts is not attractive either. Some potential solutions include:
1. Waiting a couple extra years to double your IRA yet again (@30% per year) which will double or better your annual distribution.
2. Launch a qualifiedSEPP program early on one of the accounts to simply serve as a device for banking after-tax money earmarked for latter use.
3. Launch a qualified SEPP plan that utilizes “annual recalculation” so that subsequent year annual distributions go up or don depending on your investment experience.
4. Launch two SEPP plans, one qualified & one unqualifed biting the bullet on the extra 10% tax on the unqualified SEPP plan.
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2005-02-18 11:48, By: TheBadger, IP: []

L2: Retire at 40 Steve,
I am in a similar situation to you and plan on using method #3 TheBadger recommends, SEPP with annual recalculation. I plan on continuing to work after starting the SEPP plan until I grow my account to where the SEPP payments exceed what I make working. You give yourself some insurance with this method in case the 30% gain turns out to not be sustainableor you have a bad year with your investments.
Good luck,
Tim2005-02-18 12:30, By: Tim, IP: []

L2: Retire at 40 Hi Badger,
Thanks for your reply. In reading your response I was wondering if it would be easier to roll my 2 large accounts into multiple 401K accounts. Ihave my own business and assume I could have not just 1, but say 10 different Solo 401K plans on this business. I fund each (rollover)with $100,000k and then take a $50k loan out on each. I use this $500k to invest in the same investments as the original IRA and 401K. I know I have to pay back the loan in 5 years with interest, but that is not a problem. Once the 5 years hit I would take out new loans and do it again.
Steve2005-02-18 12:31, By: Steve, IP: []

L2: Retire at 40 Hello Steve:
What a good / novel idea. Actually not. IRC 414(b) & (c) will effectively aggregate all of your 401(k) accounts and treat them as one account; thus permitting one and only one loan.
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2005-02-18 13:25, By: TheBadger, IP: []

L2: Retire at 40 How about showing a little love for this board and tell us how to get consistent 30% returns!!!2005-02-18 13:54, By: sam, IP: []

L2: Retire at 40 Sam,
I usually don’t say much about what I do. Yes,30% does sound a bit outlandish, but after many years of hard work I have found my passion. I trade futures. Although I would not recommend it to all it has been good to me. It takes a lot of disciple and psychology adjustment to get over the fear and greed issues but it has been worth it. I am able to put the max allowed ($40,000) into my solo 401k every year. I am looking at retiring in the next few years and now I can’t get the moneyI need out of my retirement accounts. Such a problem to have I guess….2005-02-18 14:15, By: Steve, IP: []

L2: Retire at 40 Steve:
Congratulations for figuring out the futures market and havingsuch succss. That’s one market I have no clue how to work so I don’t recommend it to clients (I’m a planner),and I wish you continued success.
I agree you have a problem of too much money in the wrong places … qualified-type accounts. May I suggest something that I’m sure someone on this boardwill enjoy slamming me for,but here goes. Take a look at cash-value life insurance. There are ways to ‘over fund’ Universal Life (UL) and Variable Universal Life (VUL) policies, and some Whole Life (WL) can be used,and then make ‘loans’ to get cash out of them. If you want to explore this avenue find a well established planner with a lot of experience with this technique. Also, this may not be an ‘instant’ solution but something to build for the not to distant future.
Another problem you will probably have in about 30 years, under current tax laws, is having to take too much money out of your IRAs and Individual K-plans and you won’t need the money. Here again you might look to alternative investment plans to deal with this situation.
And if your current success continues, and if the repeal of the estate tax laws happens in 2010, then you need a good estate planning attorney as part of your mix.
Again, congratulations for your successes with your investment methodology, and good luck for the future.
Jim2005-02-18 14:45, By: Jim, IP: []

L2: Retire at 40 Badger,
I just looked over the section you referenced and I have a question on this. If the 401K’s are at 3 different company’s (owned by me) would they still aggregate them and only allow one loan. I ask this because each of the 401k’s has the loan provision, so I thought I could take out $50,000 from each for a total of $150,000.
Thanks again for your comments,
Steve2005-02-18 14:52, By: Steve, IP: []

L2: Retire at 40 Steve:
One point just occurred to me. If I understand correctly, you have 3 separate ‘companies’ with individual K-plans at each, right? I hope your are not putting $41,000 into each ($123,000 total) since $41,000 is the aggregate total input you may make per year (2004 figures) into all such plans.
Jim2005-02-18 15:02, By: Jim, IP: []

L2: Retire at 40 Hello Steve:
Even though the 401(k) plans are housed/administered out of three different entities; you own, either in whole or in part, all three entities; therefore the “controlled group” statutes will apply causing all three plans to be treated as one plan.
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2005-02-18 15:07, By: TheBadger, IP: []

L2: Retire at 40 Jim,
Thanks for your ideas as well. I am only putting in the $40k total for all three companies, so I’m fine there.2005-02-18 16:59, By: Steve, IP: []

L2: Retire at 40 Steve,
First, congratulations on your succes to date!
However, I am concerned about your retirement strategies for the following reasons:
1- You are still very young.
2- Your sustained growth expectations are too high.
3- You’re worried about having too much money in your IRA in the future.
4- You’re taking annual loans from your retirement savings.
5- You’re attempting to take too much retirement money by 72T standards.
6- You have many years of retirement (hopefully) ahead of you.
Based on the above, here are some “ideas” that pop into my head:
A- Wait a few years before implementing a permanent retirement plan.
B- Test the retirement waters (even take withdrawls w/penalty if you have to).
C- Don’t be penny wise and dollar (e.g., lock up your retirement money too early).
D- Seek qualified planning advice before implementing any retirement plan.
E- Seek a second opinion on any advice from a qualified planner.
D- Roth IRAs?
E- Annuities?
The best of luck…
gus2005-02-19 07:43, By: gus, IP: []