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59 1 2 Rule:
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The 59 1 2 Rule refers to the IRS regulation that allows retirement account holders to make withdrawals from their qualified retirement plans without incurring the 10% early withdrawal penalty once they reach age 59½.
The calculator uses the 59 1 2 Rule formula:
Where:
Explanation: Once you reach age 59½, you can withdraw any amount from your qualified retirement accounts without paying the 10% early withdrawal penalty, though ordinary income tax still applies.
Details: Understanding the 59½ rule is crucial for retirement planning as it marks the age when you can access your retirement funds without penalty, allowing for more flexible retirement income strategies.
Tips: Enter your estimated retirement account value at age 59.5 to determine how much you can withdraw penalty-free. This helps in planning your retirement income strategy.
Q1: What types of accounts does the 59½ rule apply to?
A: The rule applies to qualified retirement accounts including 401(k)s, 403(b)s, traditional IRAs, and other tax-advantaged retirement plans.
Q2: Are there any exceptions to the early withdrawal penalty before age 59½?
A: Yes, exceptions include first-time home purchases, higher education expenses, medical expenses exceeding 7.5% of AGI, disability, and substantially equal periodic payments.
Q3: Do I still pay taxes on withdrawals after age 59½?
A: Yes, while the 10% penalty is waived, withdrawals from traditional retirement accounts are still subject to ordinary income tax.
Q4: How is age 59½ determined?
A: You reach age 59½ exactly six months after your 59th birthday. The IRS counts this as reaching the required age.
Q5: Does this rule apply to Roth IRAs?
A: For Roth IRAs, qualified distributions (after age 59½ and 5-year holding period) are completely tax-free and penalty-free.