475 | How to Access Your Retirement Accounts Before 59.5 | Sean Mullaney

24:07But I'd love to hear you fill in the blanks on this. Yes. So you're absolutely right. Almost everyone in the audience will never encounter the estate tax, right? So we can generally speaking, put that to the side. If you're going to encounter the estate tax, you already have plenty of advisors in your life. Let's put it that way. So then we think about the retirement accounts, traditional IRAs, Roth IRAs, the traditional IRAs, no step up in basis, always taxable for those inheriting from their elderly parents, generally speaking, a 10-year rule applies, right? Roth IRAs, they don't get a step-up basis, but they don't need it because it's tax-free distributions anyway.

24:43But then the taxable accounts, right? Step-up and basis. I like to say some of the best tax planning is both free and inevitable. And that is the step-up and basis. It's great to leave taxable brokerage accounts to your heirs because they inherit with the so-called step-up and basis. So on the way home from the funeral, they can sell those assets. And the only capital gain would be from the date of your death to the date of your funeral, very little. So that basically what happens is if you inherit a taxable brokerage account from your mom, your dad, that basically just goes into your taxable asset pile and it only has capital gains from the date of death going forward.

25:21So that's a great asset to use to fund an early retirement. Awesome. That was very helpful. Thank you for the sidebar. So let's keep rocking and rolling here. So inherited retirement accounts we've got, where do we go next? So the next place I would go if I was thinking about an early retirement is the so-called rule of 55. Folks in the FI community love the rule of 55, but it's somewhat constraining, right? So what this says is if I leave employer A and I do it in the year I turn 55 or later, I can take penalty-free withdrawals. I still got to pay the tax, but I never pay the 10 % penalty on withdrawals from that employer's 401k.

26:06But we got to think about it. It's a little constraining, right? Because A, I have to separate from service in the year I turn 55 or later. So I can't do this in the year I turn 52, 53. And I can only get it from the 401k or other employer plan at that employer. So if I have another old 401k from a former employer, that doesn't qualify. And what if I don't like the investments at my current employer's 401k, then that's not so good. And I can't roll my current employer's plan into an IRA before 59 and a half. The second I do that, I lose this exception too. Look, maybe I'm 56 years old and I'm going to retire and I've got a million dollars in my employer 401k, and I love my employer 401k, then great.

26:53Rule of 55, great way. I pay the tax, but no problem. And then I don't have to pay the 10 % early withdrawal penalty. I'm happy. So that would be one I would very much look into understanding it's got some constraints. It's got some limitations. Okay. So yeah, that sounds very limited because like you said, I think the majority, I'm making this stat up, but I would think a significant percentage of people who separate from an employer would roll that 401k into a traditional IRA that they control at a investment company that they work with already. Think Vanguard, Fidelity, Schwab, et cetera. So right.

27:29Those people, because it's not that employer's 401k, they can't do this. And so right. Rule of 55. This is if you separated from service at 55 or after. So we're talking at At most, this is a four and a half year gap to get us from 55 to 59 and a half, right? In best case. Yeah. It has a slightly odd rule that you basically get to be 55 on January 1st of the year you turn 55. So it could be a little more than four and a half years. Right. But not much. But anyway, so it's a powerful tool, but it's got to be the right profile, right? It's not going to be for everybody out there. And you may decide, hey, you know what?

28:05I just don't like the investments inside this 401k. so I'm going to do a traditional IRA transfer. And then we could do other planning. We'll talk about that later. It just means that the rule of 55, which is flexible in the sense of, I love this 401k. I left after 55. Great. Then it's very flexible. You just take distributions however you want, not that many limitations, but again, you have to have exactly the right profile to qualify. Yeah. Okay, great. So let's not belabor that one. I think everybody understands very specific, but can be really, really useful. So, okay, where do we go next?

28:38The next place I'd go, again, for a limited slice of the audience, governmental 457Bs, right? So for whatever reason, the tax code never attached to governmental 457B plans, the 10 % early withdrawal penalty. So for those in the audience with the right kind of 457B, check with your employer, check with your plan administrator, this could be the path. And in fact, you probably wouldn't want to roll into a traditional IRA if you had this feature. This could be just a great way of avoiding the 10 % early withdrawal penalty. We don't have to worry about age. We just take it. Yeah, we pay the tax, like I said, but no big deal.

29:12We avoid the penalty there, but you got to check with your employer to see if that particular 457B qualifies. So Sean, okay, that's an important point, right? Not every 457B qualifies, but it sounds like the majority of them would, right? That's my understanding of it. I haven't actually encountered too much of that in my practice. The other thing to consider is sometimes people have rolled IRAs into 457Bs and sometimes the withdrawal, that particular money doesn't qualify. So you just want to be very careful with that. I think the IRS has some literature around this, but yeah, I mean, it may be the case that the 457B is a great place to access penalty-free distributions before 59 and a half.

29:50All right. I love that. And that, so right, again, subject to you confirming that your 457B works for this, which it sounds like many, many should, but you obviously need to confirm. This means there's no penalty before 59.5 on any of these 457Bs that qualify. So it's not, hey, if you wanted to start accessing it at 35, you could. This is not like to get you from 50 to 59.5. There's no, you need to be in your 50s. This is just part of the 457B. And Sean, I'm so glad you mentioned this because I get emails every single time 457B comes up or any of these early withdrawal options come up because I almost invariably forget this.

30:29And people are like, Brad, you have to mention this every single time. It's so important. This is one of those essential pieces that really people who have access, like you said, government employees, et cetera, this is a real positive aspect of 457B. So I'm glad we touched on that. All right. So we did taxable accounts, inherited retirement accounts, rule of 55, 457B. What's next? So to my mind, we have two big ones left on the table. The first one is what I refer to as Roth basis, often people talk about a version of Roth basis referred to as the Roth conversion ladder. So the most natural application of this, but certainly not the only one, is say you get to early retirement at age 50 and you're like, hey, I like that taxable accounts thing Sean and Brad were talking about.

31:15So what I did was I had five years of taxable accounts saved up and I live from 50 to 55 on those taxable accounts. But what about 55 to 59 and a half? And I separated from service, by the way, well before 55. So rule 55 is off the table. I don't have a 457B, right? So what could I do? What I could do is set up a situation where in my later 50s, I have what I refer to as Roth basis to withdraw from. So Roth basis is all your old annual contributions and Roth conversions, generally speaking, that are at least five years old. So a bunch of people are going to get to early retirement with Roth basis existing because, hey, in their 30s and 40s, they were contributing to Roth IRAs, hopefully in their 20s, right?

31:59But even if you didn't, what you could do is in those first few years of early retirement, you could do Roth conversion, say 40 ,000, 50 ,000, 60 ,000. You say that's going to be relatively low tax, but it also sets up basis that in five years, I could take tax-free, penalty-free. And so that can be a strategy of, okay, I've got some taxable accounts. I have some Roth basis already. I'm going to generate more Roth basis by doing these affirmative taxable Roth conversions in five years. If I'm under 59 and a half in five years, I can access those old conversions without paying the 10 % early withdrawal penalty.

32:36Yeah. Okay. This is huge. And there is a distinction, right? So you're saying regular Roth contributions that you may have made over the years. Now, I know you've told us previously, we had a specific segment on this of how much you love the Roth IRA because your contributions, your standard contributions to Roth IRA can be withdrawn, obviously tax, but tax and penalty free at any point. So there is a distinction between the Roth contributions that you made over the years and this Roth IRA conversion amount. Is that right? That's exactly right. So the Roth contributions, those annual contributions you made every year, When you're taking money out of a Roth IRA before turning 59 and a half, those come out first tax and penalty free at any time for any reason.

33:26So a bunch of folks in the audience are actually going to have a significant amount of that. So you can take those out and those, by the way, come out first. There's an ordering rule, right? We don't even get to decide this, but the ordering rule turns out to be very favorable for taxpayers. So, okay, great. Maybe you retire at 57 and you look at your old Roth, what I would call Roth basis, and you say, well, I've got two and a half years of old annual contributions. I could just live off that in theory, right? It might be that you have just enough to get there, or it might be you do Roth conversions in early retirement, but then, yeah, for the first year or two or three, you live off your old annual contributions, and then you access those quote unquote ladders that you set up because you did 40 ,000 in year one.

34:09Well, guess what? That'll be available in year six and later. So that's the big distinction is Roth annual contributions come out anytime, tax and penalty free, any reason. Taxable conversions, you got to wait those five years, right? But if you have other Roth basis that works, maybe waiting that five years is no big deal. Yeah. And I think the Roth IRA conversion ladder is one of the most powerful things we have going in the FI community. And Jonathan and I, way back when, in episode all the way back in 17R, Sean, which is April of 2017, really almost seven years ago. And then we followed up in January of 2020 in episode 163R.

34:50Those are two different Roth IRA conversion ladder case studies. So for anybody listening, if you were not a Choose of i listener way back when, which most likely you weren't, Go back and listen to those 17 R and one 63 R. There's like probably 20 or 30 minute segment in each one. And it really dives through just an example of a case study, because again, this is what I think might be the biggest superpower of the five community where you can put money in to your 401k traditional IRA, et cetera, tax deferred. So you've got a tax deduction on the front side. And then Sean, like we talked about 20 minutes ago, where because of the standard deduction and potentially other deductions, maybe tax credits that you might have, there is a reasonable chance that, especially if you're at a point where you have$0 of current income, that you could do this conversion and pay$0 of federal or close to$0 of federal tax on it.

35:49And then what you're ultimately doing is creating a five-year bridge. Because like you said, you can't access that amount that you converted until five years later. So what you need is your five years of living expenses in that intervening time. Now, most people will get that from regular taxable brokerage accounts. Like you said, you can pull it from other Roth contributions that you made, normal Roth contributions that you made from maybe 10, 20, 30 years. And that might cover you for a year, two, three, or maybe even up to five of those years that you need to bridge. But every single year you can do that Roth conversion, maybe pay$0 of federal tax or close to zero on it and ultimately pull all or most of your money out of your taxable, quote unquote, taxable accounts like your 401k and IRA and pay$0 in tax on it.

36:43I mean, Sean, if that's not a superpower, I literally don't know what it is. Yeah, it's really fantastic. I've been thinking lately, you know, what does our tax code want us to be? and it feels like our tax code wants us to be retired, particularly early retired and married. I will say that. The superpower is if you could be married and early retired, the tax code loves you, right? And this Roth conversion ladder, by the way, it still works very well for singles, but for marrieds in particular, boy, oh boy, can it be very powerful. And like you're saying, you're working, so you're paying marginal tax rate 24%, 32%, 35%.

37:17okay, great. You take a deduction in a 401k, fantastic. And I saved some tax this year. And then you get to early retirement and you could employ a tactic like this and it can come back out. Some of it's going to come back out at zero if you do things right. So you really made money on these traditional retirement accounts. Yeah, it's fantastic planning. And it is a reason, if you're sort of teetering, should I early retire? Should I not? The tax code would like to weigh in and say you should. Now, that's not the only determining factor, but boy, oh boy, can it help for those thinking about early retirement.

37:51Yeah. Yeah. I love it. It really, again, it's almost beside the point of how we want the world to be. It's irrelevant. I think this is where a lot of us get caught up in is like our ideals and how we want the world. Like the rules are the rules and we have to maximize them to the extent that we can. Do I think that this was how this should be in a perfect world? Yeah, probably not. But listen, and I'm going to take it. And the same with the ACA. I mean, that's another, another massive aspect of this is if your income is low enough, you're going to get essentially free health insurance or pretty darn close to it.

38:25So fully subsidized health insurance, let's say. So like you said, you get to a point where you're like, all right, look, if I can get all this money out tax-free, my tax liability is going to be almost zero. My health insurance premiums are going to be almost zero. I mean, it is really, you can make that case that this is set up to incentivize people to retire early and be in the fight community. I mean, we're being somewhat facetious, but not all that much, you know? I totally agree, Brad. And yeah, you don't make the rules. And even if you ran for Congress, Brad, you'd be one of 435 in the house, right?

38:57One of a hundred senators. So even if you were in Congress, you wouldn't have that much control over this. And most of us listening probably aren't in Congress, right? So it's not our fault the rules are what they are. They are what they are. We're just playing by these rules. Yeah. Agreed. Agreed. Agreed. All right. We're getting towards the end here. I think there's one more massive one that you want to talk about. Yeah. And it's something that has changed recently. And it's a change that a lot of folks didn't fully appreciate, myself included when it happened. So it's the 72T. So 72T was something a lot of planners were wary of for a variety of reasons.

39:33It's more complicated than anything else we've talked about so far. But the other thing about 72T before January of 2022 was this, it was very dependent on interest rates. So if your plan in your late 30s, early 40s was, I'm going to get into my early 50s and retire in a 72T, you were taking a big gamble. You were saying, all right, I think interest rates will be high enough to support an annual payment computation that will get me enough to live off in retirement. 72T is basically a computational thing. I've done a blog post about it. I've done a YouTube about it. I can send that to you, Brad, for the show notes.

40:11Yeah, we'll link that up in the show notes for sure. It's not that complicated, but it very much relies on having an interest rate that could support pulling out a set amount from traditional retirement accounts that could support you in retirement. And if interest rates went really low, that was going to be very hard to do unless you had a massive amount inside traditional retirement accounts. Well, January 2022 happens. the IRS and Treasury sort of quietly issued a notice. It's called 2022-6. And this notice says, well, you can always use a prevailing interest rate based on market conditions.

40:46They call it 120 % of the midterm applicable federal rate. Okay, fine. But that's based on market conditions or any interest rate from zero to 5%. Basically, it says if interest rates go to 1%, 100%, half a percent, lower, you could always use up to 5%. Well, that made 72T a lot more reliable. It doesn't mean it's a go-to, but I'm telling you right now, Brad, there are people listening to this today who are 52 years old, 53 years old. They've got$10 ,000 in a savings account. They've got a paid off house and they have two to 3 million in a 401k or other workplace retirement plan, all traditional.

41:22And they're saying, well, I have enough money to live off in my retirement, but it's all subject to that 10 % early withdrawal penalty. And I would tell that person, now is the time to at least reassess, to say, you know what? I know 72Ts out there. I know it requires some knowledge and it might even require working with a professional, but I can get educated about it. And it's not so onerous. What it means is you're generally signing up to do an annual equal payment between now and turning 59 and a half. If we're 54 and a half or younger, we're doing it for five years, right? You have to do it for at least five years.

41:57So for 50, it's to 59 and a half. If we're 56, it's to 61. 72T is out there. I don't think it's the go-to because it has bells and whistles. It has some constraints. We have to take that money out every year. If we don't, we get assessed the 10 % penalty on the earlier distributions we did under 72T. So it's not lightly to be done. If I'm at 30 years old in the audience right now, I'm probably not going to plan into 72T, but I'll tell you, if I'm 51, 52, 53, I'm listening to this now, I look at my sum total and I say I have more than enough to retire, but 90 % of it's locked up in tax-deferred 401ks or other assets, I'd say, I want to at least consider this.

42:38I want to think about it if I'm thinking about retiring. Okay. That is very, very helpful. So right, this is for, in very broad terms, like you said, somebody who doesn't have, let's say, a large taxable account to fall back on to maybe bridge the gap like we talked about with earlier, different options? Yeah, this is for, you know, I can't rely on rule of 55. Maybe I'm 52, 53. I don't have an inherited retirement account on the table. I don't have much in the way of Roth basis and I want to leave now, right? The Roth basis, you know, maybe I have 20 ,000 of Roth basis. Well, that's only going to take me so far and then I got to do Roth conversion ladders, right?

43:12If I don't have all these other tools in my toolbox, rule of 72 to my mind seems to be something that in today's revised environment with the ability to use the 5 % interest rate, I could probably... What I'm trying to do with a 72T is set up two IRAs. It's sort of interesting. I set up two IRAs. I set up a 72T IRA. That's the IRA that I lock up and I take out the annual payment every year. But I always want to have a non-72T IRA if I can for two main reasons. One, I may want to do Roth conversions from that thing in addition to the 72T, but that's a marginal reason, but that absolutely could be a reason.

43:51The second reason is, what if I start a 72T at age 52 and I get to 57 saying, I'm like, you know, I need some more living expenses. I can do a second 72T to supplement while there's been some inflation or I want to buy a new car or whatever it is. I could maybe do a second 72T from my non-72T IRA. So it gets a little complicated. I did a lengthy blog post about it. But I think for those in the audience who are thinking about this and they go to their advisor, they may want to talk to their advisor and say, you know, I think the planning environment on this change because of this interest rate change from the IRS and have a conversation that way.

44:29Interesting. Okay. Since you brought that up, I can't let it slide. The splitting between IRAs, again, we're not diving into the precise details, the minutia of it, but what are you talking about there. How would someone literally split an IRA? Is it from a 401k? Is it like - Yeah. So generally speaking, what happens is this. If you want to start a 72T, you generally get your IRAs sort of all together in one IRA. And then you run some numbers in terms of what the 72T payout would be. And you'd say, well, I don't want that much, right? You'd run the numbers based on your life expectancy, the balance in the IRA and the interest rate.

45:05And it would probably, in many cases, it's going to produce a number that's too high, right? Because you don't want to take 140 ,000 if you only need 60 ,000 because you don't want to pay tax every year on 140 ,000. So say you run the numbers on your total IRA and it would produce an annual payment based on the IRS computation of about 140 ,000. But you say, well, wait a minute, I only want a$60 ,000 payment. So then what you do is you say, well, I got to compute something that would produce a$60 ,000 payment. So you figure out the size of what I refer to as the 72T IRA. And then you call your financial institution and you say, look, financial institution, I'm doing a 72T.

45:42And so I need you to break my current IRA with you guys into two IRAs. One is exactly the size of the 72T IRA. And then the other is whatever's left over. All right. And part of the reason I do that, well, I do that for a number of reasons. One, to control the size of the annual distribution. Like I said, I don't want to pay tax on 140 if I can pay tax on 60 and live on 60, right? And then two, that leaves me with a non-locked up IRA, this non-72T IRA. That IRA now can support all sorts of planning. Maybe that IRA I use for Roth conversions, if that's helpful, or maybe that IRA I use later on to break up again into a second 72T IRA because maybe my living expenses increase later.

46:28The other thing that's on the table here, Brad, since we're doing a 72T deep dive is maybe I start a 72T at$60 ,000 a year at 52. Okay, fine. Well, then at 57, something happens in my life. I inherit a big IRA or other taxable account. My YouTube channel explodes, whatever it is, right? Now I have all this other money, but I still got to pay tax on this$60 ,000 every year. That's no bueno, right? Well, the rules allow you a one-time semi-do-over. They allow you to recompute the$60 ,000 one time only. And basically, you're able to hive that down based on a RMD table. So that's another reason to have our 72T IRA be as small as possible.

47:12If I need the bailout, just because, look, my circumstances changed, I don't need to be paying tax on$60 ,000. What you can do is you can say, all right, I'm going to IRS, I'm recomputing how I compute this and it's probably going to be a lot less than the 60 ,000. It won't be zero, but depending on your age and you want that account balance to be as small as possible at that point so that the reduction becomes a lot less. So it's a semi bailout from, I agreed every year I'm going to take$60 ,000, but now I don't need 60 ,000. I don't want to pay tax on it. Well, maybe I checked the relevant RMD tables.

47:47Maybe I can get that down to 15 ,000 a year, at least this year. I got to recompute it every year, but that's a semi bailout. And it's good to then have two different IRAs because keeping our 72T IRA as small as possible can actually be beneficial if our circumstances change. Yeah, man, Sean, it takes a lot to surprise me at this point. We've done 630 some odd episodes. I have never heard that. And I don't think I would venture to say maybe less than a 10th of 1 % of people in the FI community has ever heard what you just said, which is essentially, as I'm hearing it, you can split IRA accounts by your financial institution into, it sounds like essentially as many times as you want to.

48:29And these 72T, which are also known as what's the other? Series of substantially equal periodic payments or SEPP or SOEPP. Right. So if you've heard it multiple ways, but those are IRA account by IRA account. So it sounds like when you are calculating this, it is just based on the amount in that particular IRA. And like you're saying, there's a lot of potential planning. You can subdivide these into small amounts for potentially, hey, I might need more in the future. Okay, I can subdivide it in the future. I can do it now, but it probably would make sense to do in the future. you split it into, hey, what do I need now?

49:11You calculate that, you leave that amount in, the rest you split into another IRA, and you have planning options for the future. So, I mean, Sean, that's brilliant. Yeah. And actually on my blog, I did a post with a little bit of a case study where you start a 72T IRA, and then later on you decide you need a little more. So I set up a second 72T IRA in the case study. And I think you alluded to, well, why haven't I heard about this until today? And some of it has to do with the history of 72T, where before this change in early 2022, you were taking a gamble. You were taking a gamble that interest rates would be high enough that it could support a sufficient payment.

49:52And back in 2020, interest rates got real low. I think one time the 120 % of federal midterm AFR was something like 0.42%. So you'd have to have a massive IRA to support a payment that could sustain your lifestyle. So I think planners naturally sort of avoided them and it was like, you know, break in case of emergency. And now it's like, well, we could at least think about this a lot more understanding that if we're a year or two out, we can at least plan understanding we can always use at least a 5 % interest rate. So this is one of those things where there was like this little mini earthquake in the planning world that so many of us, you know, people are busy and we were in the habit of not planning into 72T.

50:33And I'm not here to say that 72T is now the cat's meow, but I am here to say from a planning perspective, it became a lot more viable. Yeah. Agreed. And I've always heard it's so complex and blah, blah, blah, blah, blah. So yeah, it seems like there was a lot of talk against 72T, but we're hearing it now. My brain is now spinning because this is the first time I've heard of this. So I'm wondering, is that do-over? You get that one do-over, you said, essentially. Is that by account? So let's say, what if you had set up 10 different, I'm not arguing for this, your brain's going to explode, but you had 10 different of these split IRAs into little 72Ts.

51:11Do you get a do-over per account or is it just one per taxpayer? Brad, it's all account by account. So it's funny that in the IRA world and the Roth IRA world, we tend to think about aggregation. Generally speaking, what the IRS says, the Internal Revenue Code just says this, is all your IRAs are a single IRA. All your Roth IRAs are a single IRA, a Roth IRA. All your distributions are a single distribution, the whole bit. Aggregation tends to be the rule of the land when it comes to IRAs. 72T is the exact opposite. 72T is IRA by IRA, just the way it is, right? So yeah, you could in theory set up a 72T and then say, oh, I want to set up a second 72T IRA and then say, well, I want to reduce the 72T payment from the first 72T IRA, but not the second.

52:02Yeah, it's account by account. This is unbelievable. So, okay, I know you were giving the example of, okay, somebody who's about 50 or thereabouts, you should think about 72T. But are there any rules against someone younger doing it? I understand you're obviously locking in for a longer period of time, et cetera, et cetera. But are there rules against that? So a couple of things about a younger person using a 72T. First of all, it's often based on our age. So the younger we are when we start a 72T, it's going to be harder to generate a sufficient payment to support our full lifestyle, right? So that is an argument against somebody in their 30s or early 40s using a 72T.

52:41The second thing is 72T becomes more attractive the older we are, the closer we are to that 59 and a half because of the risk profile. So one of the risks on 72T is if we don't take out the payment every year, right? It's what I refer to as an execution risk, right? With proper planning, it can be mitigated and avoided. But say you drop the ball and you take out the wrong payment one year, well, that now subjects all the previous pre-age 59 and a half payments to that 10 % early withdrawal penalty plus interest. So this is part of the reason we have to be careful. Like I'm saying, 72T is not the go-to, right?

53:20Even today, it's just more viable than it was two years ago. I think that's the big takeaway is, look, it's a more viable option if we're sitting there in our early 50s and we have all this money, but it's all locked up. We ought to be thinking about it, but it doesn't mean it's risk-free. And if we are on a 72T, say it starting at 57 and we only have five years and at age 60, we blow one of the payments. Well, okay, we have the age 57, 58, and 59 payments that will now become subject to the 10 % early withdrawal penalty and an interest charge. Well, that's one risk profile. But what if we started this at 48 and then we blow the age 58 payment?

53:57Now we have 10 payments or whatever that is, 11 payments that could now be subject to the early withdrawal penalty plus interest. So the older we are, the less risk a 72T payment plan presents. It's never zero risk, but to my mind, I feel like this risk is manageable, but yeah, you might need to consult with a professional on it. Yeah. Agreed. Okay. So execution risk, also known as maybe like dotting I's and crossing T's risk, right? Like if you're on top of things, if you have, like I use Todoist as my test list and I would have it in there precisely on the right date, I'm not going to miss this.

54:31But if you are, there's potentially a significant downside. But if you could say, I mean, again, my brain is just worrying a thousand miles an hour right now, Sean, because this is an option that I had never considered, but I think is with those caveats is really, really viable for a lot of people. This is going to blow a lot of people's minds. So, okay, that was fantastic. I think basically the only way that I see left is just simply paying the penalty as a kind of not sexy or ideal as that is, are we missing anything else or is just simply paying the penalty before 59 and a half our last option?

55:07I think that is the last option. I was telling you, Brad, before we started recording, I was thinking, what if I was 59 years old and I've got 10 million in a 401k, an extreme example, and I need 40 ,000 for the next six months? I'd probably just say, you know what, I'm going to pay a$4 ,000 penalty. I'm worth$10 million. I'm going to move on with my life. I'm not setting up a 72T. I'm not worried too much about, do I have enough Roth basis? Fine. But outside of that, yeah. And by the way, paying the penalty, it is 10%. You got to do your own analysis and research. And now the other thing too is, maybe it's like, look, I have a one-year situation where I think maybe I'm going to take a mini retirement.

55:52Jillian Johnswood talks about mini retirements. Maybe I need$20 ,000,$30 ,000 for the mini retirement, then I'm going to come back to work. Would it be the end of the world to pay a$2 ,000, $30 ,000, 10 % penalty on those type of amounts? I'd say maybe that's just a cost of doing business and you move on with your life. So paying the penalty is not the worst thing in the world, but I think part of the point of this conversation is in today's environment, there are plenty of ways that you can live prior to 59 and a half without paying a 10 % and really withdraw a penalty. Yep. Totally agreed. That's what we talked about for an hour.

56:24So yeah, there's clearly a lot of options, but again, this is not the worst option. And all the things that we talked about previously also tie in, which is, Hey, this will be a taxable event pulling that money out. Right. But if you are earning$0 of income, otherwise, like you're saying in this mini retirement example, you're going to pay potentially$0 of tax because of that standard deduction, et cetera, on that withdrawal. So you're paying zero and then you have to pay a 10 % penalty. I know it's not a tax, but even if we want it to be cute and call it a 10 % effective tax rate, yeah, listen, that's not so bad in the cosmic scheme of things, especially if on the front side, you got a deduction at 22, 24%, maybe 32 or who knows, right?

57:10Like, all right, listen, 10 % that still works out to be, this was a pretty darn good decision to do this. So yeah, even in kind of a worst case scenario, if you will, 10 % isn't so bad. So it's just yet another thing to consider in this list. So Sean, this was a remarkable episode. Thank you so very much for being here. Thanks for dialing through all of these. I think we had, by my count, six different options is what I'm counting. And then taking the, just diving into the penalty is option number seven. Yeah, right, right, right, right. So seven different options for accessing this money and really bridging that time to this mythical 59 and a half that we all kind of worry about.

57:49So Sean, again, thank you very much. As we've said, fitaxguy.com. I know people can reach you there. Is there another place you want to send people to get in touch? So Brad, folks can find me at my financial planning firm, mulaneyfinancial.com. You can find me on X at Sean Money and Tax, and you can find me on YouTube, Sean Mulaney Videos. Beautiful. Sean, thank you again. I really appreciate your time. This was fantastic. And we'll talk soon. I know we have a mailbag episode coming up in the next couple of months, so that should be fun. Thank you, Brad. Really enjoyed the conversation today. Thank you for listening to today's show and for being part of the Chooseify community.

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