Accessing your retirement accounts early: yes you can!

I have been posting on the Mr. Money Mustache forums for some time. Every week, new people come into the community, excited about the possibility of retiring early and trying to plan how to get there. This is great! One question that comes up extremely often, almost daily, is some variation of the following:

I want to retire early, but I am worried I have saved too much in my retirement accounts (IRA, 401(k), etc.). I can’t touch any of this money before age 59½. Should I quit contributing to my 401(k) and start saving more in a taxable account instead so that I have enough money to make it to 59½?

No! Keep saving in your tax-sheltered accounts! The idea that you can’t withdraw from your retirement accounts early is an extremely common misconception, but a misconception nonetheless.

Far from being an untouchable pot of money for an early retiree, retirement accounts are a great tool to help you save money on taxes while you’re working, while offering several options for withdrawing that money at whatever age you decide to leave the workforce.

In this post I will explain three main ways to access these funds before the “traditional” retirement age.

Option 1: Roth Conversion Pipeline

How it Works:

Roth IRAs are pretty straightforward for “normal” retirees: pay tax on your income in the year you earn it, save some of it in your Roth account, let it grow for a few decades, then withdraw it completely tax-free during your retirement after age 59½.

What happens if you want your money before age 59½? Many so-called experts would say “you can’t do it! You’ll pay huge penalties! There be dragons here!” The problem with the expert wisdom is that it’s just not true! Some lesser-known provisions related to Roth IRAs make them really great tools for early retirees.

If you withdraw from a Roth IRA prior to age 59½, the taxation and penalties depend on exactly which dollars you took out. There is a set of ordering rules that determines this. In a nutshell,

  1. Direct contributions come out first,
  2. Amounts converted from pre-tax retirement accounts come out next (older conversions before newer conversions), and
  3. Earnings come out last.

The direct contributions can always be withdrawn tax-free and penalty-free. Amounts converted from pre-tax retirement accounts can always be withdrawn tax-free (since you paid tax when you converted it), but there will typically be a 10% early withdrawal penalty if you take out money that you converted less than five years ago. If you dip into the earnings before age 59½, you will pay your regular income tax rate plus a 10% early withdrawal penalty on this money.

The Roth conversion pipeline is a strategy where you use these rules to your advantage, allowing you to get money out of your pre-tax retirement accounts early without paying any early withdrawal penalty.

The key thing here is the five-year rule for withdrawing conversions penalty-free. If you converted $10k in 2010, you can withdraw that $10k in 2015 completely free of tax or penalties! If you converted $11k in 2011, you can withdraw $11k in 2016 for free as well!

The idea of the “pipeline” is that if you convert some money every year, after five years you will be able to withdraw some money every year as well, completely tax-free. That’s all there is to it! You can gradually draw down your pre-tax retirement account balance during early retirement by converting one year’s worth of expenses into a Roth IRA, letting it sit five years, and then taking it out. Any growth on this money should remain in your Roth IRA, where it can continue compounding tax-free and can be withdrawn freely after age 59½.


  • This method is flexible. You are free to convert a different amount every year to account for any lifestyle changes that you may anticipate five years in the future.
  • This method is easy to understand.


  • This method may result in high taxes during the last few years of work, when starting the conversion pipeline and earning money from a job at the same time. To avoid this, consider having some money in taxable accounts and/or direct Roth contributions to pay for part or all of the first five years of early retirement.
  • The tax-free withdrawal amount is based on nominal dollars. If a period of high inflation begins during your early retirement, you may find the amount you converted five years ago to be insufficient to pay your living expenses in current dollars. When making a Roth conversion, use a reasonable estimate for inflation to reduce this risk. For example, if you convert 30% more than your current living expenses each year, you will be prepared for five years of 5% inflation.

Option 2: Substantially Equal Periodic Payments

How it Works:

Any early withdrawals made from retirement accounts under a series of “substantially equal periodic payments” (SEPP) are not subject to an early withdrawal penalty.

These payments can be calculated in one of three ways as defined by the IRS. The easiest method is the same as for calculating required minimum distributions: take your year-end account balance, divide it by your life expectancy (from a table), and withdraw exactly that much from the account. Do this every year to calculate your payments for the next year.

The other two methods take current interest rates into account in addition to your current age. They are a bit more complicated, but may result in a larger payment.


  • You can make withdrawals directly from a traditional IRA with this method. You do not need to transfer money between accounts periodically, wait five years, or make estimates for financial needs years in advance.
  • These withdrawals are consistent. You will withdraw a certain percentage of your account balance each year, and this withdrawal will be a slightly larger percentage of your account each year as you age.


  • This method is very inflexible. If you choose to take withdrawals using the SEPP provisions, you must keep taking them for five years or until you turn 59½ (whichever is later). If you fail to withdraw the correct amount even one year, you will owe 10% early withdrawal penalties (with interest) on all previous SEPP withdrawals.
  • An early retiree will likely find that SEPP payments for a younger person are a low percentage of their account. Someone in their 30s will withdraw 1.9%-2.7% of their account if they use the required minimum distribution method. Therefore someone depending on a 4% withdrawal rate will need to get some money from other sources (taxable accounts, rental real estate, etc.) to bridge the gap.
  • SEPP withdrawals from a Roth IRA are possible, but this money will be taxed as income.

Option 3: Pay the *%&@ Penalty

If you take money out of a traditional or Roth IRA before age 59½, and no other exceptions apply, you will pay your regular income tax rate on this money plus a 10% early withdrawal penalty. This doesn’t mean you “can’t” do this, just that there’s a cost to doing it.

Given the alternatives above, paying the penalty shouldn’t generally be your first choice. However you should be aware that it is an option, and you should not be afraid to use it if it’s the best option available to you at the time.

For example, suppose that you’re relying on the Roth conversion pipeline for the bulk of your early retirement expenses. You planned ahead for some inflation, but the actual inflation rate turned out to be higher than you expected. If this happens, you can simply withdraw some extra money from your traditional IRA and pay an early withdrawal penalty. The world will not end if you need to do this sometimes.

Remember, if your tax rate is at least 25% while you’re working and 15% or below when you’re retired, paying tax and an early withdrawal penalty during retirement will be no worse than if you paid your regular tax rate on that money while working and saved it in a taxable account! Again, the strategies above can help you do even better for the majority of your spending, but a little bit of early withdrawal penalty here and there is okay.

Final Thoughts

I hope this post helps debunk the myth that you can’t touch your retirement accounts until you turn 59½. You don’t need to quit saving in your tax-deferred accounts if you want to retire early. You may find some extra flexibility during early retirement from having some of your money in a taxable account. A diversity of possible income sources can help you optimize your life from year to year, taking advantage of things like ACA health insurance subsidies and other programs. However, contributing the bulk of your savings to tax-deferred retirement accounts will generally help you pay less tax and retire sooner. The strategies above can help you tap into that money before 59½.

Have questions? Ask them below!