Dude ACTUALLY Withdraws From His 401(k) and Retires at 47

Episode #560

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Did you know you can use your 401(k) to retire early? Yep, it’s possible. And today’s guest, Eric Cooper, is doing it at age 47! Most FIRE chasers search for how to withdraw from a 401(k) early but know that doing so will hit them with substantial penalties. The best way around this? The 72(t) rule—which is precisely what Eric has been taking advantage of. Eric uses the 72(t) rule’s “substantially equal periodic payments” to take early withdrawals from his 401(k) of $30K per year, starting at age 47. But how does it work?

Eric comes on the show to describe exactly how this early withdrawal rule works, how much you can take out, the regulations to follow so you avoid penalties, and why early retirement may be much closer than you think. But this isn’t the only early retirement income Eric has got. We’ll review his substantial real estate portfolio and detail Eric's almost unbelievable tax savings from combining tax-advantaged rental properties with rule 72(t).

Plus, Eric shares how he built a multimillion-dollar nest egg by his mid-forties and why those starting young on the path to early retirement can repeat his strategy to be much richer in retirement. Do you have money sitting in retirement accounts that you’re ready to use? The 72(t) rule might be just what you need.

00:00 intro
01:14 What is Rule 72(t)?
05:30 Avoiding Early Withdrawal Penalties
11:12 Building a BIG Nest Egg
17:14 Retiring Early at 47!
18:00 Different Investment Accounts
21:41 Why Withdraw Early?
24:52 Rental Income and Healthcare
30:44 Selling the Rentals?
32:54 Calculating Your 72(t) Income
38:40 Advice for Early Retirement
41:18 Connect with Eric!

[whitefearlytales]

Fear and uncertainty create major wealth. It's those who take the risk and have strong gut to endure the bloody days. When i notice extreme dips i tend to actually move more money to Bitcoin

[phoebejiang]

Omg! This is exactly my situation and been wanting to get more information on 72T and thank you Mindy and Scott for inviting Eric to talk about this topic! Thank you SO much Eric!❤

[zackdreamcast]

This advice will likely get buried into the comments and the guest won’t be able to read it but here you go. For the rental properties specifically.

1.) do seller financing with some sort of lease to own set up. You can keep getting the same annual cash flow, the sale could be work out were it’s only the down payment they give you as income. They pay you monthly but if something goes out (water heater hvac etc it’s they rent to own person that pays it. If they default and done pay you you can repossess the house and now you have both the “rent” and the asset.

2.) I own multiple short term rental properties. Plan is for me to move into each of them for 2 years during my retirement so that I don’t have to pay taxes on the 250k of application or have to worry about the depreciation recapture. This should be even easier for you to do the same as all of your properties are in the same spot so the hassle of moving/relocation is essentially not present.

Good luck and congrats on early retirement

[guile-mdmg]

The 457 that public sector employers frequently receive allow you to start taking withdrawls from tax deffered contributions provided you have permanently separated from service.

[LiamOlivia-]

I'm 54 and my wife and I are VERY worried about our future, gas and food prices rising daily. We have had our savings dwindle with the cost of living into the stratosphere, and we are finding it impossible to replace them. We can get by, but can't seem to get ahead. My condolences to anyone retiring in this crisis, 30 years nonstop just for a crooked system to take all you worked for.

[justamanwithbeliefs]

I’ve been diligently working, saving and contributing towards early retirement and financial freedom, but since covid outbreak, the economy so far has caused my portfolio to underperform, do I keep contributing to my 401k or look at alternative sectors to meet my goals?

[hastycontemplation]

Wonderful guest! I did not know about the 72t, so this was very helpful.

I heard of someone who, similar to the guest, reached millions in his 401k and was in despair when he realized how much in taxes he had to pay since he was nearing or at rmd age. He regretted not addressing this issue earlier in his life.

I was thinking that a roth conversion ladder might not be a bad idea, especially since the guest is still young and has the time. But it is interesting how everyone has their own preferences. A 15 year growth on 2.7 mil at 6% interest is 6.4 mil, so I can see the reasons for sitting back and letting it grow.

It would be great to have the guest return and maybe talk more about not wanting to do a roth conversion and to also use this to discuss all the different paths that one can take.

[ryan]

This was a really rewarding episode. I enjoyed his story

[thehaitianambassador]

The major advantage of the 457B is the early withdrawal withdrawal without the penalty.

[Finaceizzle]

Very relatable topic. Great job on asset accumulation. Probably even better at asset management job in retirement. Enjoyed every minute. He seems like a really genuine guy. Happy for his success

[travis]

Wow! Eric Cooper has this figured out with tax advantage assets and solid strategy. Something just about anyone can do with time and proper planning. It's possible even with having a less net worth than Eric.

[johnlittle]

The revenue from the rental property does not include expenses, property tax, maintenance and any HOA fees, so definitely lower cash flow but still great! The big thing to me is the huge annual return he got on his 401k, my largest one is about 1/4 of this!

[darrenmatthews]

On the thought of selling the rental properties, if you are willing to be the lender to the buyer and hold the note, you will be able to spread the capital gains across the years of the loan. You will basically calculate the percentage of principal being paid back and that is the percentage of capital gains you need to claim for that year. Keep in mind that if the person you sold to refinances or sells to someone else and the new buyer doesn't assume the loan, you will get hit with the rest of the capital gains in that year.

[Thewhynotpodcastteddyd]

He’s from my hometown of Louisville! Awesome story, keep killing it! 👍🏾

[JohhGaudelli]

Retirement becomes truly fulfilling when you possess two essential elements: ample financial resources and a meaningful purpose in life. Make prudent investment choices to secure good returns and ensure a comfortable retirement.

[natgirl]

great episode, and im cracking up at the subject line ahaha

[justinzunker]

The 72T info was good, but I'd like to know more about the rental income side, and using tax deductions to still qualify for ACA.

[melissacampbell]

Affordable Care Act with 1.7 mil in 401k???

[larriveeman]

only have a 2 year degree, did 3 years in military, worked for the feds for 37 years + 3 years in military total of 40.5 years, no debt, pension I have a great pension, wife has a smaller fed pension + SS, I won't take mine until FRA, been retired 3 years, not touching IRA/TSP except to roth convert. Having pensions ( with COLA) that cover all expenses, with health insurance still at the same rate as when employed + medicare, no debt and pensions are a game changer

[suzettewaite]

ThNk you soon much. If it wasn't for you, I would be soo lost