72(t) question

[mdebluz]

Hello all,

I am planning to take 50K out of a 401K I got in a divorce settlement to pay off debt, and yes I know what a hit it is going to be, but really have no choice... It was his 401K and I will still have about 150K left. I will also be getting about 250-300K from a pension in a few years.... I also plan on working for about 10 more years and I earn 60K a year...

Here is my question-- I am planning on the 401K going into the IRA and will use the 72(t) to have extra income for some other things... My question is-- if I leave the whole 200K in there until the IRS approves it (or however that works) will I have a larger amount coming every month? It seems like that is the way it works. But, this whole thing is very confusing to me anyway.... Any feedback??

 

[MasterBlaster]

You didn't say how old you were. Distributions depend on your age, an IRS defined "reasonable interest rate" and 1 of 3 amortization methods. If you are 40 (or so) years old then you can take out, penalty free, around 4.33% of the balance every year (that's $2165/year or $180/month for a $50k account). At 50 years old it's maybe 4.88% and so on.

What people do is figure out how much they need and then they leave only that amount in a particular IRA account which gets the 72t treatment. Other money gets transferred to a different account.

The IRS makes you go by the letter of the law. Mistakes can be costly here. If your money is in a mutual fund then the mutual fund company can help you set up a 72-t.

Notice that the withdrawals are penalty free but not income tax free.

Also once you start taking distributions you must continue for at least 5 years.

here's a fun calculator:

72(t) Calculator - Financial Calculators from Dinkytown.net


You need to read about 72t withdrawals:

http://72t.net/

http://fairmark.com/forum/read.php?2,7984

a 72t Works | 72t Distribution | 401k Rollover | IRS 72t | 72(t) Calculator

 

[kyounge1956]

You didn't say how old you were. Distributions depend on your age, an IRS defined "reasonable interest rate" and 1 of 3 amortization methods. If you are 40 (or so) years old then you can take out, penalty free, around 4.33% of the balance every year (that's $2165/year or $180/month for a $50k account). At 50 years old it's maybe 4.88% and so on.

What people do is figure out how much they need and then they leave only that amount in a particular IRA account which gets the 72t treatment. Other money gets transferred to a different account.

The IRS makes you go by the letter of the law. Mistakes can be costly here. If your money is in a mutual fund then the mutual fund company can help you set up a 72-t.

Notice that the withdrawals are penalty free but not income tax free.

Also once you start taking distributions you must continue for at least 5 years.

here's a fun calculator:

72(t) Calculator - Financial Calculators from Dinkytown.net


You need to read about 72t withdrawals:

72t.Net | SEPP Plans | IRC Section 72(t) | 72t Distribution | IRC Section 72(q) | yyyZ.Com

Fairmark Forum :: Retirement Savings and Benefits :: 72t withdrawals

a 72t Works | 72t Distribution | 401k Rollover | IRS 72t | 72(t) Calculator

(emphasis added) Isn't that five years or until age 59-1/2, whichever is longer?

 

[ziggy29]

(emphasis added) Isn't that five years or until age 59-1/2, whichever is longer?

Correct.