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401K rollover to IRA and 72T
Old 09-11-2013, 05:48 AM   #1
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401K rollover to IRA and 72T

Hi - long time lurker but infrequent poster. I'm 50 and in the home stretch to early retirement in the next 12-24 months. When I started planning my early retirement a few years ago, my plan was to setup multiple CD ladders over many years, and I would spend about 1/2 and reinvest the balance in another CD. I have the CD's setup, but don't want to exhaust them in a low interest rate environment. So I'm think about converting my 401K when I retire, and add it to my current rollover IRA and setup a 72T at age 52. The 72T withdrawls would be about 4% of the balance from ages 52-60 according to the 72T calculator on bankrate.com. Has anyone done this? How long does it typically take to convert a 401K to an IRA rollover? Could I transfer all my stock/bond positions, or do I need to liquidate and re-buy in the IRA? Lastly, are there any time restrictions between converting to the rollover IRA and starting my 72T withdrawals?
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Old 09-11-2013, 06:48 AM   #2
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Lots of questions here. I won't answer them all but I will ask some more.

What is your overall allocation? Is this CD ladder going to be the whole thing?

Depending on your 401k plan you may have the ability to take withdrawals without penalty from it after leaving the company and, usually, over 55. Does your plan have this option?

A CD ladder designed as a "sinking fund" is a good way to address a known need for money. It would allow your other assets to remain invested.

If you transfer your 401k to an IRA it usually doesn't take too long. Unfortunately, how you have to do it depends on your plan. I have had plans that allowed me to do trustee to trustee transfers. My current plan forces me to take out cash which is sent to me by check made out to my new trustee. So, answering your question is not possible. You need to ask your current 401k trustee.

Whether you can move assets also depends on your plan. Publically traded funds may be allowed to be moved. Private or limited availability funds are not. In general, 401k plans seldom have good index funds in them so you are probably better off going to cash.

A new rollover IRA can be accessed immediately after your new trustee confirms that your rollover check cleared.

When I have moved 401k money, I have usually done it in chunks so that I don't go "all cash" for the time it takes to move the account. This is usually around two weeks.
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Old 09-11-2013, 06:50 AM   #3
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I've done the 401k rollover to tIRA part but not the 72t part.

Rollover was relatively easy. My 401k plan sent me a check made out to '[my tIRA provider] FBO pb4uski". FBO means "for the benefit of". There was a form I filled out from my tIRA provider and I certified mailed them the check and the signed form (it was a big check, hence the certified mail). It took a couple weeks from start to finish.

I had to liquidate my positions in my 401k and bought new position in my tIRA. I also used it as an opportunity to rebalance.

I'm not aware of any restriction on when you can start 72t withdrawals, but check with your tIRA provider.
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Old 09-11-2013, 10:24 PM   #4
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Thanks for the info. Both the 401K and rollover IRA are with Fidelity, so I will ask them about the rollover process. I hope I don't have to cash out and repurchase all stock/bond funds - because I would be paying short term capital gains tax if I sell in less than 1 year thru 72T. I plan on retiring at 51 or 52 - so the tax penalty exemption at 55 will not apply. The thought of working another 3 years doesn't appeal to me. If I decide to do the 72T at age 52, this will provide about 50% of my income, with the rest coming from my CD ladders.
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Old 09-12-2013, 04:36 AM   #5
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Quote:
Originally Posted by Al18 View Post
Thanks for the info. Both the 401K and rollover IRA are with Fidelity, so I will ask them about the rollover process. I hope I don't have to cash out and repurchase all stock/bond funds - because I would be paying short term capital gains tax if I sell in less than 1 year thru 72T.
No, your withdrawals from your IRA will be normal income, line 15a on the 1040 tax form. No capital gains (short or long term).
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Old 09-12-2013, 10:40 AM   #6
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Originally Posted by Al18 View Post
Thanks for the info. Both the 401K and rollover IRA are with Fidelity, so I will ask them about the rollover process. I hope I don't have to cash out and repurchase all stock/bond funds - because I would be paying short term capital gains tax if I sell in less than 1 year thru 72T. I plan on retiring at 51 or 52 - so the tax penalty exemption at 55 will not apply. The thought of working another 3 years doesn't appeal to me. If I decide to do the 72T at age 52, this will provide about 50% of my income, with the rest coming from my CD ladders.
I've done a Fidelity 401k to tIRA rollover. You can do it "in kind", which just transfers all your investments into the new account. No need to sell. You may be able to do it online, but a phone call will do it too.

Short term CG tax on a tIRA stock sale? I'm not sure how 72t affects that, or maybe you have some company stock you're dealing with? At least normally, you will be paying normal income tax (not LTCG tax) on all your withdrawals. Any transactions within the tIRA should be tax free.
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Old 09-12-2013, 05:52 PM   #7
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Thanks for correcting me on how 72T distributions are handled as income. In that case, assuming I retire in the summer, I may just pull from my CD for the remainder of the year. I can do start the 72T the following January, pulling just enough to keep me in the lowest task bracket, with the rest coming from CDs.
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