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Considering 72t
Old 12-26-2014, 08:21 PM   #1
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Considering 72t

I retired in August this year and have tapped into pretax savings to supplement DH income. He will retire mid2016. I can tap my 401k since I left work at age 56, but would have take it as a lump sum and really don't want to get hit with taxes, so I'm seriously considering a 72t on my IRA. I've played around with retirement calculators and I doubt we need the entire required distribution, so I will probably begin converting some of the distribution to my Roth account. I believe is this is allowed - correct?
Any one else leveraging 72t this way?
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Old 12-26-2014, 08:55 PM   #2
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I'm not doing it, but back when I first learned about it on intrcst's board I spent a lot of time considering it. I would probably do it in your situation. 56 to 59-1/2 isn't so long that you would likely get tripped up by unforeseen financial considerations, especially if you'll be banking some of it. In my case I was thinking about a 10 year spread, and didn't want to get locked into the limited withdrawals.

However, I don't think you can convert the amount you don't need to a Roth. You're required to withdraw a certain amount. That's like an RMD. To do a conversion you'd have to step completely outside the 72t amount and convert more. I think all you can do with the excess 72t amount would be to invest it in an after tax vehicle, savings or a brokerage account or something like that. I think I'm right, but if not I'm sure someone will be along in a minute to correct me.
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Old 12-27-2014, 08:31 AM   #3
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Originally Posted by Dog View Post
I retired in August this year and have tapped into pretax savings to supplement DH income. He will retire mid2016. I can tap my 401k since I left work at age 56, but would have take it as a lump sum and really don't want to get hit with taxes, so I'm seriously considering a 72t on my IRA. I've played around with retirement calculators and I doubt we need the entire required distribution, so I will probably begin converting some of the distribution to my Roth account. I believe is this is allowed - correct?
Any one else leveraging 72t this way?
Why would you need to take the 401k withdrawal as a lump sum? Since you left at 56 any withdrawal from the 401k is not subject to the 10% penalty.

You only have a few years to get to 59.5, sure you can't find a workaround to a 72t which is very rigid and unforgiving?
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Old 12-27-2014, 08:36 AM   #4
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Originally Posted by Dog View Post
I retired in August this year and have tapped into pretax savings to supplement DH income. He will retire mid2016. I can tap my 401k since I left work at age 56, but would have take it as a lump sum and really don't want to get hit with taxes, so I'm seriously considering a 72t on my IRA. I've played around with retirement calculators and I doubt we need the entire required distribution, so I will probably begin converting some of the distribution to my Roth account. I believe is this is allowed - correct?
Any one else leveraging 72t this way?
You might want to go to the 72t.net website and post your question.

I am doing a 72T, but not with a ROTH conversion. One thing to remember, when you start a 72T it must run until you are 59 1/2 or for 5 years, whichever is later. In your case you'd be locked in until age 61. The 72T.net site has great information and various calculators, including the 72T end date.

Good luck.
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Old 12-27-2014, 11:56 AM   #5
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Why would you need to take the 401k withdrawal as a lump sum? Since you left at 56 any withdrawal from the 401k is not subject to the 10% penalty.

You only have a few years to get to 59.5, sure you can't find a workaround to a 72t which is very rigid and unforgiving?
Many 401ks allow 55 and severed from service withdrawals. Many providers don't allow for reasonable withdrawals. Look around the forum you will find many examples.

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Old 12-27-2014, 12:42 PM   #6
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But even if she couldn't take the 55-and-up WDs tax-free, couldn't she rollover the 401k to an IRA and then do the 72t? Or is that also provider-specific?
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Old 12-27-2014, 12:43 PM   #7
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Many 401ks allow 55 and severed from service withdrawals. Many providers don't allow for reasonable withdrawals. Look around the forum you will find many examples.

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Yes my companies 401k allows for withdraws of funds after the calendar year you turn 55 and separated without penalty but you must take a lump sum distribution.
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Old 12-27-2014, 02:08 PM   #8
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But even if she couldn't take the 55-and-up WDs tax-free, couldn't she rollover the 401k to an IRA and then do the 72t? Or is that also provider-specific?
I believe that's real if your terminated. Some plans also allow for in service rollovers. Something to investigate is if you can split your 401k into multiple IRAs making the 72t appear to be more flexible.

I was talking with my Fidelity representative about multiple IRAs when he told me about the 55 and terminated from service rule possibility. Read the SPD it had the correct language in it, then a former co-w*rker confirmed it for me before I checked with the benefits dept.

It's not tax free but you don't pay the 10% penalty. My provider withholds 20% for fedral tax. I can ask for more to be withheld. I believe (someone smarter than me will know for sure) that the 20% withholding is mandatory.

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Old 12-27-2014, 04:30 PM   #9
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Thanks for feedback. Always helps to get input!

I was first advised by my former HR rep that I could take 401k in increments (I'm 56 ). However, when I was finalizing details I was told I have to take as one lump sum. The HR person admitted to making an error in her earlier advice. Not the end of the world, but a bit frustrating.

I do have a small Roth that I would like grow by shifting $ from my MUCH larger tIRA (hoping to prevent higher taxes later in life with RMDs after we have access to SS and won't need as much from our savings).

I will check out the 72t site recommended to see if it is possible.

Thanks again!

I do have to admit that I'm a bit nervous to begin tapping into my retirement savings. I've always been a "saver".


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Old 12-29-2014, 06:47 PM   #10
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Dog: I am 53 and had all those thoughts. Always been a saver nervous about the withdraw . This site has brought me some good info. I am going to read up on the 72t. I have wondered same thing

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Old 12-30-2014, 10:24 AM   #11
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I wonder if a creative solution wouldn't work. What about setting up a solo 401K for yourself, rolling the assets from your employers 401K into your solo 401K, terminate yourself and take withdrawals as needed from the plan....... Not certain that works; but might be worth a conversation with Fidelity, Schwab or another financial services company.
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Old 12-30-2014, 10:50 AM   #12
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I wonder if a creative solution wouldn't work. What about setting up a solo 401K for yourself, rolling the assets from your employers 401K into your solo 401K, terminate yourself and take withdrawals as needed from the plan....... Not certain that works; but might be worth a conversation with Fidelity, Schwab or another financial services company.
I like your thinking as this would be the ultimate flexible solution.
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Old 01-09-2015, 08:24 PM   #13
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I will check into your recommendation Robert57 before I pull the trigger.

I've done a lot of research the past few weeks. I now realize that we need earned income to contribute to our Roth. DH is still working until 2016, so still some time to contribute. It just won't be as much as I would have liked. Every little bit helps.

I did decide on a 72t distribution method after using a couple of online calculators including the 72t.net site. They all provided the same sums/answer . I met with a CPA today, brought in paperwork she requested (2014 IRA statement, 2013 tax return) and included a printout of the calculation from 72t site. Talked for 15 minutes and she admitted that I didn't really need to meet with her as she couldn't tell me anymore than what I already knew. I guess I just needed confirmation that I wasn't missing anything.

Thanks for the input and feedback.




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