Early Withdrawal Risks

Be one of a kind with Mike's plan.

Welcome to the One of a Kind Financial Show Daily with your host, Mike Milligan. You've worked hard, you've saved smart, and now it's your time to finally enjoy retirement. But surprise, some sneaky fees are still trying to come along for the ride. Recently on the One of a Kind Financial Show on the radio, Gary and I Talked about how, how you can avoid costs that can quietly derail your retirement dreams. We spotlighted several big things from the IRS to investments to 401 interest to those partnership distributions from your IRA that we call RMDs. Uh, when it even can come from like taking, getting less in Social Security over your life. There's a lot of things that sneak up in retirement that people don't know about until they're there. We revealed those. We, we put the spotlight right on them in the One of a Kind Financial Show. And I want you to enjoy those today. It's hump day and you are one of a kind.

We all know retirement takes planning, a whole lot of it. Most even more carefully laid plans can hit a few potholes. Many come in the form of fees and penalties. that just don't nibble at your nest egg. They take a bite today. Talk about avoidable expenses in retirement. The ones you feel like you're getting charged. You bring extra popcorn, you bring your own popcorn to the movie theater. Some expected, others totally preventable if you know where to look. Let's start with the biggie. Early withdrawal penalties. What's on the 2025 landscape, Mike?

Well, here we are just a couple of weeks. I mean, when this— guys, when you're hearing this, you realize you still have a couple of weeks left in the year. But Uncle Sam still has no patience for early birds when it comes to retirement withdrawals. So if you tap into your individual retirement account before the age of 59 and a half or your 401 before 55, if you've separated from your employer, you're looking at a 10% early withdrawal penalty on top of the income taxes. However, Roth IRAs continue to offer flexibility. you can withdraw up to your contributions at any time, tax and penalty-free. Here's the catch though. Many people still don't know the difference between contributions and earnings. And so a lot of folks are just not coached clearly on what is the best route to take if an emergency or a need comes up to take money from their plan. And that's why we're here, guys. We understand the rules of Roths. We understand the rules of 401s. We understand the rules to keep you out of the IRS penalty box.

Yes. There you— oh, there you go. We got one. All right. Better than icing the puck for sure. All right. Going to give you the phone number in just a couple of minutes. All right. Here we go. What about 401 loans? Are they smart, safety valve, or a trap in disguise, Mike?

On paper, borrowing from your 401 sounds like a low-stress way to accomplish cash. You can borrow up to 50% of your vested balance or $50,000, whichever's less. No penalties, no taxes. But if you leave your job before paying it back, the full loan becomes taxable income. And if you're under 55, the 10% penalty kicks in also. Like when the, when the labor market's tight, like it is right now, and you, if you're planning a job switch, like many people have been forced to do this year, like when the federal government downsized jobs and people are going into the private sector, That loan loophole is more risky than it looks. Gary, I will say one thing about 401 loans. We have advised those in certain situations. We're not, you know, you know this, we're not like a one-size-fits-all firm. We'll do what's best for the client when it's time to do it. We've required those. But if you're going to, if you take out a loan, what most people don't realize about a loan, because when they hear the word loan, they're thinking, oh, I got to pay a bank back, or I got to pay a credit union back.

Right.

When you take out a 401 loan, you're technically paying yourself back.

Yeah. You're paying yourself back. Yes.

Yeah.

You're paying.

And so if you're going to take out a loan, pay it back over 5 years, you got to think about that money like it's your bond allocation, like your bonds, right? Because bonds pay interest with a maturity. And that loan is in essence like a bond with a maturity, right? You're paying the interest back to your account. The bond's going to mature in 5 years where all of it's paid back. But if you keep your investments the same way they were before you take their loan, like in a target date fund, now you're too conservative and you have to re— So if you've taken a loan out of your 401 or your TSP and you're listening here today, And you know that you have not gotten good advice when it comes to what allocation should be in your 401, right? Or your TSP. That is another reason to call us because we understand what the loan really is. It's a bond payment back to yourself, right? It should be calculated in your total balance, and you should make sure that the rest of your money is allocated for growth. Mm-hmm.

And let's get you on the calendar. Let's give you the phone number, get you all set up with that one-of-a-kind financial plan. It is 800-748-1838. 800-748-1838. Or text the word ideas to 600-700. The folks at Warnock Financial standing by this weekend, ready for your phone call. The show is the One of a Kind Financial Show with Mike Milligan. I'm Gary Nolan, your consumer advocate. And we're halfway through the show, diving into segment number 3. Got to talk about RMDs. Still catching retirees off guard?

They are. I mean, people are— everybody we were talking to, right? I mean, there's very few people that know about RMDs in their 40s and 50s unless they've inherited money previously. And then even those people that are hearing about them don't really understand them. And so the SECURE Act 2.0 has pushed the RMD age to 73 for most folks in 2025. with plans to push it to 75 years old beginning in the year 2033. But here's the penalty, is if you miss an RMD, you have to pay not only the tax on the missed amount, you also have to pay a 25% penalty on what you should have withdrawn.

That's heavy.

If you correct that penalty promptly, so like for instance, you missed one this year, right? And guys, I hope if you're hearing us today, like I wish I could shout on the radio because If you are 73 and you have not taken your RMD, do not wait. If you need help calculating it, call us because I want to save you money. I'm literally, if you're 73, 74, 75, and you're hearing this, I am helping you save money by talking about RMDs today. But listen, if you correct it fast, quickly, like January, you're like, oh no, I totally forgot this. And you correct it, the penalty goes down from 25% to 10%. But guys, it's still a penalty, right? And it's lost money. Uncle Sam will say, thank you, right?

Thank you very much.

Thank you very much. But that's not what we want, right? We want to keep more of your money for you, not lose it in penalties or fines. Really?

Right, right. And thanks to the IRS, it used to be 50%, now it's 25%. So very generous. Something nice for you.

Very generous.

Very generous. We all talk about Social Security timing, and that, that is still a very important point to make. I bet you most people come in the office, that's one of the first questions they ask, Mike, is when should they take Social Security?

Well, Social Security is a math problem. It's really what it is. And most people, uh, have not done the type of math that Social Security requires since high school or college. And you can claim Social Security as early as 62.

Yep.

But in 2025, that comes with a price. It's up to a 30% reduction in your monthly benefit of what would be your full retirement benefit at the age of 67. And once you start, you're locked in. Now, You can get a cost of living adjustment over those years. But remember, if you start early, it's like choosing the small fries for life when you could have waited and got the supersized version later on. Oh, a little McDonald's reference there.

I like that. There we go.

Look at that. So if we're truthful about Social Security, there will always be a little bit of doubt in everybody's, in every retiree's mind, did I do the right thing? And there's that age-old question that if you could answer this for me, I can give you the perfect Social Security claiming strategy. It's, when are you going to die? If you could tell me that, I can math it out, right?

Sure.

But the key is, is we don't know that. So we have to do the math and show what's the total amount you're going to collect if you claim early, What's the total amount you're going to collect if you go at full retirement? What's the total you're going to collect at 70? And then what's the trade-off for waiting? Like, does it mean you have to work longer? Or do you have to use your assets? But the Social Security timing or claiming strategy is a critical component of what we do, a component of what we do in the One of a Kind Financial Plan.

Yeah. And make sure Mike helps you with that. One more question. We got about a minute left. Medicare penalties still sneaking up on people, I guess, huh?

Yeah, they can be brutal. If you don't sign up for Medicare Part B when you're eligible, starting 3 months before your 65th birthday, your premiums can increase by 10% for every year you delay. Part D, which covers prescriptions, has its own penalty that kicks in if you go 63 days without coverage. With healthcare costs projected to rise by 5% in 2025 and even And even that in 2026, these mistakes can be costing retirees thousands.

Yep, absolutely. All right, Mike, up against the clock. Tell us about the one-of-a-kind financial plan that you do for folks every day.

Yeah, Gary, we missed one question on there, and that was where we were going to talk about fees, like investment fees. And guys, if you don't know what your investment fees are, that's something we'll talk about. And that's a pothole and a pitfall or a penalty box, if we're going with the hockey terminology that we'll—

There you go.

keep you out of. But when we build a one-of-a-kind financial plan for you, we're going to start with you because you are who the plan is for. A financial plan should not be about Wall Street and banks. It should be about what your hopes and dreams and aspirations— it should be what— we have to answer the question, why is money important to you? What will it allow you to do? And when we answer those and build a vision for what your retirement's like, we're going to help you reduce taxes, unnecessary taxes that you no longer have to pay if you understand what a true tax plan is. We're going to help you with retirement income, getting the money you need when you need it on time so that there's no fear and anxiety in retirement. An investment plan that looks at the fees you paid to determine if they're worthy in the portfolio to see if it helps keep up with inflation over your life. A long-term care plan that allows you to be taken care of with dignity at the end of your life. And a legacy plan that says, I love you. Those 5 components of the one-of-a-kind financial plan is what I do every day, full-time, along with my team of 20 professionals. Because at the end of the day, it's about you. I believe you are unique, and I believe you should live a one-of-a-kind life.

Get the One of a Kind Financial Plan. Here's the beauty of this whole thing, folks. There's no cost, there's no obligation to get a better handle on your financial situation. It all starts by picking up the phone and dialing this number: 800-748-1838. 800-748-1838. Or text the word ideas to 600-700.

I hope you enjoyed that segment of the One of a Kind Financial Show. We're found weekly on WINS and WTAR in Norfolk, Virginia, and on AM in Midland-Odessa area in Texas, and anywhere you find your podcast. I want to remind you that I, Mike Milligan, am an investment advisory rep with Advisory Alpha LLC. Ideas by Mike, doing business as One of Financial, is an unaffiliated entity to Advisory Alpha LLC. All opinions expressed on this mini podcast and on the One of a Kind financial show, radio show, are just of that. The opinions are mine and Gary's. We're here to provide educational content for you, but remember, as always, consult a licensed financial professional before making any decisions. Any tax advice references Social Security Administration should refer to the Social Security Administration and tax advice should reserve be reserved for the IRS website and also consult a qualified tax advisor before making any. Tax decisions.

Be one of a kind with Mike's plan. In a face shot growth, take a stand. Visibility strategy, take the lead. Transformation's yours. Mike's got the way to help you rise and stay. Leadership impact you'll find in your one-of-a-kind mind. Be one of a kind. Take the flight. Mike's the guide. You'll shine bright.