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New 72t, where to put it?
Old 07-16-2013, 06:46 PM   #1
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New 72t, where to put it?

Am thinking about doing the 72t thing with my 401k. A little over 1/3rd of my ret. $$$. (470k 401k) (250k lump sum pension earning 4 1/2%) ($120k in 2 Roth's) (Rental $400k, $2000 per month rent)
Would like about 24k per yr. for 8 1/2 yrs on the $470k / 72t.. (to 59 1/2)
Don't plan to spend it every yr. , could add $13000 to the (2) Roth's, save as cash or spend if needed.
Not to keen about putting it in stocks right now.
With folks bailing out of bonds, would that be an option? Its in MM cash now.
Checked out XMPT today. Am starting to look at bonds/bond funds. Even 4 1/2% 15 yr tax free and hold the full 15 yrs?
Just throwing a few things out there....... Not sure at all.

Thanks!
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Old 07-16-2013, 06:52 PM   #2
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Not sure if you can get 24k per year on $470k with today's interest rates. Have you modeled this yet with a 72t calculator? SEPP Payment Calculator is what I have used in the past.

-gauss

p.s. Some of the links seem to be broken because I need to add a leading 'www' in the address bar.
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Old 07-16-2013, 07:01 PM   #3
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lol lol, I was using an old caulculator from 2002, 3.20%.
72T Calculator: Early withdrawals from retirement accounts

Looks like $18446 at 1.50%.

Same question though.......
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Old 07-16-2013, 07:10 PM   #4
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What I decided to do, instead of a 72t, was to convert each year from 401k to Roth enough to max out our 15% tax bracket. This will help with the required RMD's down the line at age 70 for us. This does not directly help with the cash flow prior to age 59 1/2.

To solve this problem I will do non-qualified withdrawals from my Roth's between age 53 when we both stop working and age 59 1/2. I can take all of my contributions and conversions out without paying tax or penalty (although additional IRS reporting on form 8606 is required). You may want to look into this strategy if a significant portion of your Roths are comprised of contributions/conversions as opposed to market growth. The market growth portion of the Roth is not freely available until age 59 1/2. All of these strategies assume that the Roth has been opened for five years before withdrawals take place.

-gauss
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Old 07-16-2013, 07:27 PM   #5
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The Roths are 10yrs old..... Am sad to say, most of it was my money.
I was thrown a curve ball. Planned for 55. Forced out turning 52 instead.
About $200k short of the goal.
But will make it work.
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Old 07-16-2013, 10:10 PM   #6
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Presumably the 72t withdrawals would be money you might spend in the short term, although it sounds like there's excess just in case. That would suggest something like cash or bonds.

My other thought would be that if this is longer term, just buy in a taxable account whatever it was you sold in the 401k. That keeps your AA balanced.
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Old 07-16-2013, 11:35 PM   #7
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Originally Posted by almost there View Post
<snip>
Don't plan to spend it every yr. , could add $13000 to the (2) Roth's, save as cash or spend if needed.
<snip>
Thanks!
It sounds as though you may be planning to contribute at least some of the 72T money in excess of your expenses to the Roths. I don't think you will be allowed to do that without penalty. This would be considered a Roth contribution, which must be made with earned income, so unless you are working, you cannot (without penalty) contribute to a Roth. You can use a Roth conversion to move money from the 401K to the Roths, but that would be separate from and in addition to the 72T. Save it or invest in a taxable brokerage account -- no problem.

Edit to add: You mentioned Roths (plural). The Roth accounts must be your own, not a spouse's.
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Old 07-17-2013, 01:44 AM   #8
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Good points, thanks! Wife works part time (one day a week) so at least we could add $6500 per yr.

My 1st post was poorly worded.
Looking for ideas where to invest the funds to be drawn down on utilizing 72t. Getting more conservative as time goes on.
I know, I know.. 4% inflation for 40 yrs is tough. And that's the number real experts seem to use.
But would like some ideas on where you would put it today, its all cash at this time.
So, it would be averaged into what ever I come up with.

Just trying to see if there was anything out there I have not considered.
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Old 07-17-2013, 08:53 AM   #9
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psst....... Wellesley. YMMV.

I don't see 4% inflation for 40 years, but if that happened interest rates would need to increase significantly from where they are today.

Another option might be to buy Guggenheim Bulletshares in various maturities that provide the 72t cashflow you need.
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Old 07-17-2013, 09:25 PM   #10
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If you don't have earned income you can't make new contributions to a Roth or TIRA.

You can't use the 'equal payments' of a 72t to add to a Roth. You have to use the interest rate that the government formula allows.
How are interest rates determined?
You may use any interest rate that is not more than 120% of the federal mid-term rate published in IRS revenue rulings for either of the two months immediately before distributions begin.Retirement Plans FAQs regarding Substantially Equal Periodic Payments
I think there is an exception for folks over 55 to take money from a 401k after separation from service but if you start a 72t based on your life expectancy you have to continue that until age 59 1/2.
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Old 07-18-2013, 12:02 PM   #11
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Don't plan to spend it every yr. , could add $13000 to the (2) Roth's, save as cash or spend if needed.
It looks like you have two goals. One is short term saving for emergencies or fun. The other (Roth) is long term for future spending.

I'd put the first wherever I've been putting "near cash" - short CDs, MM mutual fund, whatever.

I'd put the Roth in the same asset allocation as I'd use for the 401k.
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Old 07-18-2013, 07:22 PM   #12
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Am now thinking about adding 590k (401k and Roth IRA) to a roll over IRA & taking the 72t. (401k and Roth IRA=590k @ 1.46% = 23k per yr.
Leaving the 250k lump sum pension earning 4 1/2% % + alone till 59 1/2.
Guggenheim Bulletshares look really interesting for the 590k as I see a stock market crash in the next two yrs. Boy, isnt this fun...........
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