Did you, or will you, 72t to ER?

[Aeowyn]

No - I've always been a big fan of Roth IRAs, and now I'm an even bigger fan in regards to this issue. I'm planning to have 13-14 years to cover before I turn 60. I've made max contributions for most years since the Roth IRA was available and I've rolled prior employer savings plans into it (and amounts from current employer that were allowed). Because of this, I have over twice as much in Roth accounts than I have in tax deferred accounts.

I also plan to convert the tax deferred funds to Roth during low income years to max out the 15% bracket.

I figure we can make it at least 5 years using our taxable accounts (more if we bring in some money from our self-employed ventures).

When we need money from the sheltered accounts, I'll just take contributions and conversions that have aged at least 5 years out of the Roth.

This way, I'm not locked into taking a fixed amount out of the tax sheltered accounts each year.

 

[SomedaySoon]

A month ago the answer would have been yes, at least to supplement our after tax accounts. However, my DW just found a job she loves and has decided to work for another 5 or more years. Her job will cover health care and 90% of our living expenses. Now we'll use the income from the after tax accounts to cover the taxes on some small Roth conversions, keeping our AGI within the 15% tax bracket.

 

[kyounge1956]

This poll is missing the lesser known cousin IRS Rule 72Q, same rules as 72T but applies to Annuities; Certain Proceeds of Endowment and Life Insurance Contracts.

I didn't answer, I'm in the Maybe/Not Sure boat.

Do you have a link to info on rule 72Q? I am thinking of taking part of my pension as a lump sum which I would buy an SPIA with. I plan to retire younger than 59-1/2 and don't know whether payments from an annuity inside an IRA would be subject to the 10% penalty for premature distributions.

 

[Blackwoodt]

My plan is to hang in at w*rk until I turn 55, not only for retiree health insurance, but I plan to leave enough money in my w*rk 401K to live off of until I turn 59 1/2, since you are not penalized if you retire or leave the company in your 55th year.

 

[scrabbler1]

We plan to use taxable until 59 1/2

Same here. I consider my IRA to be one of my "reinforcements" I can tap into when I turn 59.5 in 12 years. Until then, my taxable accounts will provide me with dividend income, and, if needed I can tap into the taxable principal.

 

[bcinvest]

My plan is to hang in at w*rk until I turn 55, not only for retiree health insurance, but I plan to leave enough money in my w*rk 401K to live off of until I turn 59 1/2, since you are not penalized if you retire or leave the company in your 55th year.

You may want to make sure your plan allows distributions before normal retirement age. That is one of the drawbacks to relying on 401(k)'s for early retirement. You may not have access to your money until 65. Even if your plan allows distributions before age 65 it could be amended to allow no distributions before 65 at any time. The likelihood is not too great, but it is worth considering. It would be a shame to see well laid plans go up in smoke because you can't get the money out.

 

[BigMoneyJim]

My plan is to use 72t withdrawals, but I may not retire early enough to need them if my after-tax savings continues to grow.

 

[Blackwoodt]

You may want to make sure your plan allows distributions before normal retirement age. That is one of the drawbacks to relying on 401(k)'s for early retirement. You may not have access to your money until 65. Even if your plan allows distributions before age 65 it could be amended to allow no distributions before 65 at any time. The likelihood is not too great, but it is worth considering. It would be a shame to see well laid plans go up in smoke because you can't get the money out.

Thanks for posting, in my case I have already checked and our plan does allow for distributions, but good advice for all.

 

[skyvue]

Yes - since I retired at 48 with 90+% assets in my IRAs, 72t withdrawals provide most of my 'income'. I use the annual recalc method, which means I will withdraw just over 3% of my Dec31,2010 balance this year. The withdrawals are almost exactly covered by the dividends from the stocks in my IRA.

This will likely be my plan. Only 43 now, want to retire at 50. Currently 80% of assets are in 401k or IRA so 72t will be the only way I will be able to FIRE at 50.

 

[skyvue]

Yes - since I retired at 48 with 90+% assets in my IRAs, 72t withdrawals provide most of my 'income'. I use the annual recalc method, which means I will withdraw just over 3% of my Dec31,2010 balance this year. The withdrawals are almost exactly covered by the dividends from the stocks in my IRA.

3% of your balance, gross (before taxes)?

 

[CyclingInvestor]

3% of your balance, gross (before taxes)?

Yes. My divisor this year (since I will turn 53) is 31.4, so 3.18%.

 

[Alan]

I answered No. We have enough after tax funds to not need to. However we are making Roth conversions to lower the eventual RMD's

One of the Roth's is also dedicated to our LTC fund and is not part of retirement funds for SWR calculations.

 

[nun]

The number of people who can live off after tax only is a surprise to me. I think this point out just how strange/bizzare/exceptional/special etc are the people on this forum

 

[Alan]

The number of people who can live off after tax only is a surprise to me. I think this point out just how strange/bizzare/[-]exceptional/special [/-]etc are the people on this forum

I've crossed out the words that don't apply to me

 

[BigMoneyJim]

The number of people who can live off after tax only is a surprise to me. I think this point out just how strange/bizzare/exceptional/special etc are the people on this forum

Well in my case I currently think retiring at 55 (in 15 years) is a bit optimistic. Hopefully I'm proven wrong. But if so, I'd have at most 4.5 years to live off after-tax money before I could use the IRAs without 72t.

 

[Red_y]

ESR'd at 49 in 2007 w/ 5 years of living expenses in after-tax accounts, which kept me from going off the deep end during the recent market "troubles". I have a large contribution basis in my Roth that I can withdraw tax-free, so I'll fund the next few years of living expenses w/ a 50/50 combo of withdrawals from the Roth contributions and the tIRA via 72t. That will keep the tax hit lower.

If I had it to do over, I'd have put more in after-tax accounts so I didn't have to go the 72t route.

 

[rescueme]

The number of people who can live off after tax only is a surprise to me.

Actually, it was not too hard to have after tax funds to cover my pre-59.5 expenses.

When I still w*rked, we had a range of folks; some who (like me) maxed out their 401(k) and TIRA's for many years (remember, this was the years in which Roth 401(k)'s were not available and Roth IRA's were only around a few years before my retirement).

Since I was focused on retirement, I contributed "above the line" (e.g. taxable) to my 401(k) for many years. We had a decent selection of funds available to us since we had different 401(k) providers over the years, but they kept the previous providers offerings. That means with the last provider (FIDO), I had the option for many non-FIDO funds.

It was easier for me to just "set/forget" by having the deductions taken out of my pay and invested rather than to set up a separate taxable account, which would have required more tracking - tax wise (yeah, I'm lazy).

As for those that would say that I was limited in my selections, our plan did allow an in-service withdrawal/rollover of around a third of my 401(k) balance to an IRA at age 55 - which I did, and allowed me to have even more of a selection of funds.

When I retired, I had my 401(k) funds transferred to a non-traditional rollover IRA and FIDO broke out my taxable contributions (above the line) for many years and rolled them into a taxable MM account, which I used as income.

Just the way I did it...

 

[sn2792]

I retired at 57, so I am using 401K withdrawals until 59 1/2 so no need for 72T.

 

[DRiP Guy]

I retired at 49, and fully planned on doing the 72(t) route, but as it is, I doubt I will need to.

I have a note to myself to do something I rarely do and look at actual cash flows. I will map out from now, all the way through 99, and see what kind of margin I have, but it should not be too difficult to get by on taxable alone, until 59.

 

[nun]

Well looks like 75% of ERers are planning to live off taxable income or allowable 401k withdrawals until 59.5 or beyond. I voted no to the question, but arrogantly I thought I'd be in the minority rather than the vast majority.

I plan to ER when my finances get to the point that I don't have to 72t to survive, which is basically when the mortgage is paid off. With that big monthly lump sum gone my expenses will be cut in half and I'll have complete control over what I spend. The kicker is that if I can live of taxable until my pensions kick in at 59.5, 62 and 66, my spreadsheet tells me I won't have to tap the tax deferred until forced to RMDs. However, I still need to look at the best time to take money from the IRA from a tax standpoint and will probably rollover IRA money to a ROTH as soon as I ER to take advantage of my low taxable income.