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New IRS Rules Make It Much Easier To Retire Early

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New rules just released in IRS Notice 2022-6 sharply hike distribution amounts permitted from qualified plans before age 59½.

The new rules will allow many more individuals to take substantially equal periodic payments (SEPPs) from their IRAs or 401(k)s in their 50s. With The Great Resignation under way, this is one of the most important personal financial planning strategies of 2022.

A search on Google for “Notice 2022-6” earlier today yielded no explanations of what’s going on, but it is a tectonic shift. The new rule puts a 5% floor on the maximum interest rate that may be used to calculate payments from an IRA or 401(k). For the past decade, the maximum rate was much lower. The rules are complicated; they require taking substantially equal periodic payments (SEPPs) and complying with Section 72(t) of the Internal Revenue Code.

Without getting into the technicalities, individuals considering early retirement may now be able to take much larger payments from IRAs, 401(k)s, and other federally qualified retirement plan accounts under the just-released rules.

The timing of the rule change is lousy. More Americans have left the workforce than had been expected before the pandemic. The labor force participation rate, those 16 to 65 in the workforce, has declined more than expected in the pandemic and has not rebounded. At a time when wage inflation is a threat, this is not helpful. 

If you have diligently invested by maximizing contributions to a federally qualified retirement plan, you may be able to retire earlier than you expected -- if that’s what you want.

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