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Struggling with 72T
Old 12-06-2019, 07:05 PM   #1
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Struggling with 72T

Left Megacorp at 49, (4 years ago) with good severance, went right back to work part time, I've been utilizing the severance for 4 years to supplement income. Husband is retired, with pension, has health insurance at 15% cost, which is very reasonable for entire family. I've been living low for the last few years and my husbands health is not great. I have 2 kids headed to college, one will do ROTC or Military academy, the other is going to do community college for 2 years, then state school. I have money saved for this outside of retirement. I love my part time job, not so much money, but it is very rewarding, something I lacked with 28 years in big business. I have 1.1 Mil in retirement accounts. I plan to work until I'm 60 and pick up a small 10 year pension from government job. I'm just tired of feeling like, I'm living too low, its depressing to me. I'd like to take 3k per month from age 54 to 59. I figure when I'm 70, I will have RMDs, I'd like to live better now, I think. I'm scared that my husband is going to be gone and I'm going to have my money, his pension and not him. We have very little left on our mortgage, we will definitely downsize, in the next few years. I'm just scared that the 72T will deplete me too quickly if the market crashes. I have a FP and I'm aware of the strictness of the 72 rules. Thoughts?
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Old 12-06-2019, 08:09 PM   #2
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Yes, the 72t ( IRS rule 72(t)(2)(A)(iv) rules are strict.

You have three different options when it comes to calculating distributions

1. Minimum Distribution Method
2. Amortization Method
3. Annuitization Method

All of these result in different payouts, with different levels of 'risk'.

You can split your tax-deferred assets into separate investment accounts, and only apply the chosen SEPP distribution method to a subset (one account) of your assets.

You only have to use the SEPP distibutions from your starting for at least 5 years, or until 59.5, whichever is later. For you, this would be from 53 to 59.5, so only about 6.5 years.

If you're still overly concerned, you can also 'save back' and not spend all of your SEPP each year. You could reinvest a portion of the distribution into the same investment.

I'd strongly suggest you check out https://72tnet.com/ and fully understand your options, rather than putting all of your trust in a FA.
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Old 12-06-2019, 08:29 PM   #3
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Quote:
Originally Posted by jojo777 View Post
... I'm just scared that the 72T will deplete me too quickly if the market crashes. I have a FP and I'm aware of the strictness of the 72 rules. Thoughts?
No need to worry... just because you take it out of the retirement account via a 72t doesn't mean you have to spend it... and $36k in relation to $1.1m is a modest withdrawal rate.
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Old 12-06-2019, 09:24 PM   #4
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I had similar thoughts that pb4uski brought up... you dont have to spend it even though you have the distribution. I just worried about taxes if i am working and receiving the 72T distribution. Just something to consider when you work out the numbers.

I am curious what you will have the $1.1M invested in while you receive distributions as well as how you go about setting it up (Fidelity?, etc). I may following in your footsteps very soon.
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Old 12-07-2019, 02:51 AM   #5
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I'm not sure exactly what your concern is.

If you're concerned about a market pullback reducing your net worth too much, then that could be because your asset allocation is too aggressive or you didn't save enough money and need to work more. That's not really a 72(t) issue.

If you're concerned about depleting your IRA prematurely and incurring IRS penalties, there are a couple of things to know:

1. The amount withdrawn at your age under any of the three permissible methods is going to be quite low; if your IRA is reasonably invested you probably won't run out of money in the 5 years you're talking about.

2. If you are running low (or even if you aren't running low), you are permitted a one time switch from either of the other two methods to the RMD method. Using the RMD method pretty much ensures you won't run out because it is recalculated annually based on your previous year's ending balance.

3. If you do completely deplete your 72(t) IRA, as long as you were following one of the permissible methods, you will not be assessed any penalties for "breaking" the 72(t) series of payments. https://www.irs.gov/retirement-plans...dic-payments#9

HTH.
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Old 12-07-2019, 08:52 AM   #6
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Originally Posted by lordjust View Post
I had similar thoughts that pb4uski brought up... you dont have to spend it even though you have the distribution. I just worried about taxes if i am working and receiving the 72T distribution. Just something to consider when you work out the numbers.

I am curious what you will have the $1.1M invested in while you receive distributions as well as how you go about setting it up (Fidelity?, etc). I may following in your footsteps very soon.
My husbands pension is tax free, so the only one making taxable earnings is me. I'm not killing it, making like 40k a year, part time. I'm invested in Fidelity, 55% domestic stock, 10% foreign stock, 29% bonds, 6% short term. If I do it I'll let you know how it turns out. Because I left (Dec 2015) before the market really climbed, I've made about 262k without putting in a dime. I'd be happy if in retirement, I can have a Mil and live on whatever I make in interest. I'll get a good SS at 70 ($2500 at age 67) and if I need to I can take it earlier. My husbands SS is only about 600 and he will take it as early as he can, since he has a gov pension.
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