Let’s say I leave my job and roll my 401k and pension into an IRA.
Say I don’t work, only living off the IRA.
As long as I only take out $10,000 a year, I won’t owe any federal taxes because that is the “standard deduction” according to the IRS.
Furthermore, if my residence is in one of the states that don’t have state income tax, I won’t owe any state taxes either.
I would only be liable for the 10% penalty because I’m not 59 and a half.
Am I correct?
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You are correct. HOWEVER I think you will find that you can actually take out MORE than $10,000 a year and still owe ZERO or nearly zero depending on other deductions you may have (healthcare) etc. Each year you can try taking out more and more each time and see if you ever owe taxes. Do not forget to check and see if you qualify for "UNearned" Income Credit on your tax bill - the IRS still does that too. By the way this is EXACTLY what Vanabode is all about, retiring NOW and buying your life back using the money you already have, rather than trying to work many more years and trying to save millions in hopes that when you are MUCH older, you can somehow put that larger sum of money to work.
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