72t

[clay5769]

Hello all I'm sure this subject has been beaten to death but I'm a bit confused I tried to get advise from a investment person and all they wanted was to get my money ($110,000) :confused:
here are my questions
1. do you need to do anything special to do this like inform the IRS other then using a 1099 that I get from my 401K (in my case thrift savings plan)
2. if I were to do this all I need to do is use one of the many 72 T calculators and continue to get that amount for 5 year or until I'm 59 1/2
3. then when I do my taxes I just use the 1099 I get from my thrift saving plan.
Or if someone can explain the steps on how to do this or what to do I would greatly appreciate it.
thanks
Clay


P.S. I have been to 72t.net I have read about a million webapges about it I'm still confused..

[frayne]

I’ll take a shot at this but also will suggest you talk with your plan administrator and get your questions answered in writing.

I started 72T or what is also called SEPP (substantially equal periodic payments) this past year from Fidelity. I did the initial calculation and also had Fidelity double check the number and do their own calculations. We were very close and I opted to use Fidelity’s numbers. There are three different methods to calculate how much you can take. It is important the calculation is correct or you could get dinged by the IRS.

When you start taking your 72T distributions they are for five years or until you are 59.5 years old, whichever is longest. I think you can make a one time change to the amount but I’m not sure about this.

After the first year you start your distributions you should get a 1099R form from your plan administrator. In order not to get dinged for the 10% early withdrawal penalty you will need to fill out (part one) IRS form 5329. You need to list the correct exception code (line 2 of section one) on the 5329, off the top of my head I think the code for 72T/SEPP is 2.

This is my first year doing my taxes since I started taking distributions and I’m still boning up on all the requirements from a tax standpoint.

As a side note I have Fido withhold federal income and state income tax based on my tax bracket.

I would still strongly recommend you check with other sources in order to make sure you do everything correctly.

I know a couple of enrolled agents and tax people that I talk with frequently to answer my questions. I also look up the info myself just for my own peace of mind. Also check the IRS.gov website as there is a wealth of information on this subject.


http://www.irs.gov/pub/irs-pdf/i5329.pdf (Info page 2&3)

http://www.irs.gov/pub/irs-pdf/f5329.pdf




Hopes this helps and feel free to e-mail me if you like if you have any other questions.

[Gworker]

For TSP I believe there is only one option for the 72T, they use only one formula. One the form 70 "Request for Full Withdrawal" under withdrawal election you mark monthly payment and check "compute my payments" and TSP computes them based on life expectancy.

That is the only way you can do it with TSP. Otherwise you will get hit with the penalty. Lucky you. I've got years to go before I have to deal with TSP withdrawals.

[frayne]

Quote:

Originally Posted by Gworker For TSP I believe there is only one option for the 72T, they use only one formula. One the form 70 "Request for Full Withdrawal" under withdrawal election you mark monthly payment and check "compute my payments" and TSP computes them based on life expectancy. That is the only way you can do it with TSP. Otherwise you will get hit with the penalty. Lucky you. I've got years to go before I have to deal with TSP withdrawals.

I know nothing about TSP but if you don't like the way they do it you may be able to roll it over into an IRA with another company that will permit you to take the most benficial calculation. Just a thought.

[Gworker]

Quote:

Originally Posted by frayne I know nothing about TSP but if you don't like the way they do it you may be able to roll it over into an IRA with another company that will permit you to take the most benficial calculation. Just a thought.

That's when you have to decide if paying higher fees is worth it. TSP has the lowest fees of anyone, but only one way to do the 72T withdrawals.

[frayne]

Again I know nothing about TSPs but an IRA can give you control and the flexibility to choose your choice of investment vehicles; mutual funds, stocks, bonds, CDs, etc. That said and I’m not pushing any fund company like Fidelity, Vanguard or TR Price but costs can be kept to a minimum by choosing no load index funds. A couple of the funds I hold have expense ratios of .07% which is pretty darn cheap.

[clay5769]

Thanks all.
I think I will roll it over into a IRA and try the 72T my only other problem is which 72T calculator to use they all seem to vary greatly..