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Fund your 401(k) or IRA first?

Retirement » Fund Your 401(k) Or IRA First?

Are you planning to retire early?
Are you planning to retire early?

A 401(k) could make withdrawals for early retirement a little simpler. With 401(k) plans and traditional IRAs (though not Roth IRAs), the standard retirement age is 59 1/2, says Bogosian. For certain withdrawals before that age, you may owe a 10 percent tax penalty, plus any applicable state and federal income taxes, he says.

With a 401(k), people who leave employment after age 55 (even those who later rejoin the workforce) "can take a taxable distribution with no 10 percent penalty," says Bogosian. "IRAs have no such 'age 55' option, unless someone wants to take substantially equal payments, which is also an option in 401(k) plans."

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