An expert advises that using retirement funds as a "last resort" is the best approach for Gen Xers as they approach retirement withdrawal age.

• As Gen Xers approach retirement age, they are becoming eligible for penalty-free withdrawals from their retirement accounts.
• One expert advises that while it can be comforting to have a safety net, the funds should only be used as a last resort.

Gen Xers are now eligible for penalty-free access to certain retirement funds as they reach age milestones.

This year, those who are the oldest in their generation will turn 59. Once they reach the age of 59½, they can withdraw money from their individual retirement accounts (IRAs) and 401(k)s without any penalties.

Participants in 401(k) plans who are 55 or older and lose or leave a job can withdraw funds penalty-free. However, this rule only applies to the account with the employer they are leaving, and plans from previous workplaces do not qualify.

There may be exceptions that allow savers to avoid penalties for early retirement withdrawals beyond the age guidelines.

According to Ed Slott, a certified public accountant and founder of Ed Slott and Co., dipping into retirement funds as soon as you're able to can be a "bad move."

""It's the most expensive option to obtain funds when in a pinch, as you'll have to pay taxes on the money," Slott stated."

Roth IRA owners may not have to pay taxes on their withdrawals if their account has been open for at least five years, unlike traditional IRA owners who usually face taxes on their withdrawals.

It is advised that retirement savers be cautious about withdrawing from their Roth IRAs, as they are growing, accumulating, and generating income tax-free, according to Slott.

"Roth money should not be touched because it grows and snowballs the fastest due to its tax-free nature, which prevents erosion by current or future taxes."

Fidelity's Rita Assaf states that Gen Xers face more stressors while planning for retirement than their parents' generation, mainly due to the higher cost of living and the responsibility of caring for both their children and parents.

A recent Fidelity study revealed that one in ten Gen Xers are still unsure about their retirement plans.

To get more certainty, having a plan can help, Assaf noted.

Tap non-retirement accounts first if possible

Assaf suggests that savers who have access to non-retirement funds may want to consider using that money instead.

Advantageous tax benefits can be obtained by keeping investments in IRAs for a longer period, according to Assaf.

Employees are less interested in work" can be rewritten as "Employees are less motivated to work.

Withdrawing from IRAs can lead to tax complications for savers, as one couple discovered when they took a $20,000 withdrawal for their wedding despite Slott's warning.

The couple withdrew even more after receiving a tax bill of around $2,000 to $3,000 following their $20,000 wedding expenses. This habit of withdrawals lasted for years, according to Slott.

Slott stated that their retirement savings were wiped out due to the cycle of taxation they got into.

Add money through catch-up contributions

For older members of Gen X, turning 50 signifies an opportunity to begin making catch-up contributions to retirement accounts.

In 2024, retirement savers aged 50 and above can contribute an additional $7,500 to their 401(k)s, bringing the total to $30,500, and an extra $1,000 to their IRAs, up to a maximum of $8,000.

Slott stated that catch-up contributions are a valuable opportunity for workers in their 50s and 60s, who are often in their highest earning years.

Consider Roth conversions

Those in Gen X who are committed to traditional IRAs and workplace retirement plans will soon have another significant milestone to anticipate - turning 73, at which point they will be obligated to begin taking required minimum distributions.

Roth IRAs do not require withdrawals until after the account owner dies.

Retirement savers can choose to convert pre-tax IRA funds to post-tax Roth accounts to facilitate tax-free withdrawals in retirement.

Paying taxes on Roth conversions now can reduce the tax impact on retirees' income later, according to Assaf.

Assaf referred to the RMD balloon as "that kind of balloon," and he noted that some conversions were causing a slight release of air.

Qualified charitable distributions allow eligible retirees to donate money from their traditional IRAs tax-free to charity instead of taking a required minimum distribution.