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Apr 19 2010 12:00AM

Question


I had to retire early at the age of 57 because of a severe illness. I was not ready financially for early retirement. I had about $90,000 in a 403(b) and I rolled it into an Individual Retirement Account (IRA). I need this money to grow and not decrease over the years so I will have future money as I get older. How can I ensure its growth and at what age will I be able to tap into this IRA without penalty if I need income from this money?

Answer


"Typically you must be 59 ½ years of age in order to make a penalty-free withdrawal from an IRA," said FPA member Raymond D. Branton, CPA, CFP®, a member of Erwin and Branton CPAs LLC. "However, several exceptions apply. One exception allows withdrawals when you separate from service after reaching age 55. That exception appears to apply to you. It is important that you do not co-mingle any other funds with this account at the risk of losing the ability to withdraw prior to 59½ without penalty."

"Now, regarding preserving the principle and allowing growth, the direction you go depends heavily on when funds will be needed and how much," Branton said. "If you can leave the funds untouched for at least five years, your investment options are vastly different than a shorter time frame. Also, you would need to consider other income present now or in the future. An example would be Social Security, which under current law would be available to you at age 62. Possibly you have some employment prospects that are compatible with limitations due to your illness. I encourage you to explore more in that area." You might also investigate whether you qualify for Social Security Disability benefits.

For his part, FPA member Bryan M. Totri, CFP®, Director of Financial Planning at St. John & Associates, Inc., suggested the following with regard to growing your funds: "First you would need to know how much income you will need from these savings. You may have other sources you haven't considered. Are you married? Did your spouse serve in the military?"

"The growth of your IRA funds must be handled cautiously since you probably need a high degree of safety so you don't lose any of your original investment amount," said Totri. "This need for safety can limit the rate of growth."

"In essence, it all depends on how much income you need your savings to provide you so you can figure how to best position your savings for growth and/or income," Totri said. "Decide first how much income you need from your savings after subtracting all other sources of income. Then go over your expenses and see what can be cut back."

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