In just the last two months my office has helped more preretirees engineer their retirement than we have in about the last two years.

Now I know conventional wisdom with these plans is that when you leave your job the proactive things to do is to direct rollover of your 401(k) to your IRA account. By the way, teachers and nurses, this conversation also applies to your 403(b) or tax-sheltered annuity plans.
When you implement a direct rollover, the money in the 401(k) moves directly to your IRA custodian, without going into your name. This transaction is a tax-neutral exchange and completing it correctly allows you to avoid the taxes and penalties typically associated with a 401(k) withdrawal.
The conventional wisdom also says once the money is in your IRA you should have many more investment choices available. When it comes time to take money out for retirement spending needs (or pass it on to your heirs) you will find the IRA quite a bit more flexible in this regard as well.
In most cases the conventional wisdom is right, and as a rule, rolling money over into an IRA is typically a solid, proactive financial planning step. But when it comes to early retirement there may be exceptions, and they are important exceptions.
The exception stems from a lesser-known Internal Revenue Service rule that allows employees who terminate their employment between the ages of 55 and 59½ to access the money in their 401(k)s without the 10 percent tax penalty typically associated with early retirement plan withdrawals.
This exception allows those retiring before age 59½ a very important tool, and that tool is flexibility. Maintaining penalty-free access to these 401(k) funds early allows retirees to structure a flexible retirement income stream during these early retirement years.
Unfortunately, the service reps of many of the large 401(k) providers have incentives to encourage participants to roll over their 401(k)s to IRAs with the same company.
Also in our area, there are planners who will attempt to have retirees set up “solo 401(k)” plans and transfer 401(k) funds into these solo plans (with the planner’s firm, of course) in order access fund through loans. This is an aggressive, untested maneuver that should be questioned.
The correct approach is to understand and evaluate all your options. Most of us will only retire once. It’s very important we get this process right.
Source: http://posttrib.suntimes.com/business/8487366-420/know-your-401k-options-when-retiring-early.html
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