While the Baby Boomer retirement boom has been underway for years, the generation right behind them is now beginning to get its first glimpses of post-work life. This year marks when the first members of Generation X (born in 1965) will turn 59 1/2. That is the magic age where you can take distributions from a personal retirement account without incurring the 10% early withdrawal penalty. Typically, this penalty applies unless the account holder claims a qualifying exception, like a first-time home purchase or a large medical bill.
However, just because you can tap your retirement without penalty, that doesn't mean you should. "Just what we need, more retirement leakage encouraged for more people," says Richard Rosso, certified financial planner. "They shouldn't do that, but that's what more people will do anyway."
Rosso warns that you will still pay a lot for the right to dip into retirement, and ultimately will end up with little or no nest egg for when you really need it. "You're still gonna be charged taxes on those distributions," he tells KTRH. "So yes, no more ten percent premature distribution penalty for you, but you still have ordinary income taxes, which I say will likely be greater than that ten percent penalty."
While tapping that retirement account at age 59 or 60 may seem tempting, Rosso warns it is anything but free money. "This is not a sign to go ahead and have a party that you can start taking distributions," he says. "I would totally ignore it, if this money is designed for retirement...wait until age 65, 67, 70, or whatever age you're gonna retire."
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