Three retirement savings strategies to use if you plan to retire early

If you're lucky to have saved enough money to leave the rat race early, you still need to a retirement strategy that minimizes taxes and penalties.

Retirement account rules are stacked against early retirees. People may face a 10 percent early withdrawal penalty if they take money out of their traditional IRAs before age 59½ and before age 55 with traditional 401(k) plans and other workplace retirement plans.

Here are some strategies early retirees can use to maximize their retirement savings:

There is an exception to the early withdrawal penalty for IRAs. The IRS allows you to take "substantially equal periodic payments" under Rule 72(t).

To avoid the 10 percent penalty once you begin distributions, you must continue to take the required distribution for the longer of five years, or until you reach age 59½. Once distributions begin, if the series of payments is modified in any way, the 10 percent penalty will be imposed retroactively beginning with the first year of distribution.

The 72(t) withdrawals are taxed at your income tax rate and the distributions are inflexible, said Josh Stillman, a certified financial planner with Capitol Financial Consultants in McLean, Virginia. "[This strategy] locks in a fixed distribution, making it hard to absorb unexpected expenses or partake in discretionary expenses, like a big trip early in retirement," he said.

Plenty of free online calculators can help you estimate what distributions may look like under Rule 72(t).

Early retirees will have several years, perhaps decades, before they can tap their traditional retirement accounts without penalty.

"These years present a perfect opportunity to convert workplace funds to a Roth," said Dana Anspach, a CFP and CEO of Sensible Money in Scottsdale, Arizona.

Roth accounts have several advantages over traditional ones for early retirees. Funded with after-tax dollars, you can withdraw contributions you made to your Roth IRA any time, tax- and penalty free. However, you may have to pay taxes and penalties on the earnings in your Roth IRA before age 59½.

Unlike traditional retirement accounts, Roth IRAs have income restrictions. This year, a single person with a modified annual adjusted gross income of $133,000 or more and a married couple making more than $196,000 cannot directly fund a Roth IRA.

However, you can avoid those income limits if you convert your traditional IRA to a Roth. You will pay income taxes on the amount you convert to a Roth and that could raise you to another tax bracket in the year you do the conversion.

"[Roth conversions] require careful tax analysis each year, after the year is over, and before taxes are filed to determine the capacity for additional withdrawals or conversions," said Pearce Landry-Wegener, a CFP at Summit Place Financial Advisors in Summit, New Jersey.

Converting to a Roth can be a bad idea if you live in a high-tax state and plan to move to a state with lower or no state income taxes later in retirement.

Not every early retiree is a fan of Roth conversions. Sam Dogen, the creator of the personal finance website Financial Samurai, retired in 2012 at age 34 after a 13-year career in finance.

Dogen said he has not dipped into his tax-advantaged retirement accounts because he lives off a passive income stream of certificates of deposits, stock dividends and real estate investments that he expects will generate roughly $211,000 this year.

"I did not convert my 401(k) into a Roth IRA because I did not want to 'give up' and pay taxes to the government. Once you pay taxes to the government up front, you lose," Dogen said.

In a taxable account, the money in the account is yours, minus capital gains taxes, without any strings attached to distributions.

"When you retire, using funds from a taxable account first and allowing tax-deferred money to continue to grow for a few more years, when you could potentially be in a lower tax bracket anyway, can be very impactful," said Melissa Sotudeh, a CFP with Halpern Financial in Rockville, Maryland.