Retiring Early? A New IRS Rule Could Mean More Money in Your Pocket
Here’s why: The “reasonable interest rate” permitted for calculating the benefit before the IRS made its changes was based on low interest rate tables that were published monthly, for example 1.52% was the rate in December. Under the new ruling the floor rate now is 5%. For the individual seeking to maximize how much they can withdraw penalty-free each year before 59½, this offers a much higher payment.
Mary is a 50-year-old divorcee who has reached $1 million in her 401(k) account, her retirement savings goal.
Had she started her payments in December, before the new IRS rule, primarily because of the 1.52% interest rate her payment would have been $36,122. Applying the new rule however, with the 5% floor interest rate, her payment increases significantly to $60,312. There’s more that goes into the black box used in these calculations, but the net effect is a big change in what she can withdraw.