Heads up on possible 72t change

[SecondCor521]

Hi all,

My parents' CPA newsletter indicated that there is a potential for Congress to add additional 72t exceptions. One of the potential new exceptions caught my eye: if you're unemployed. Seems like that could be a nice loophole, depending on how they write the law.

Sorry, I don't have any additional information.

2Cor521

 

[Leonidas]

Well, as long as they don't do it the same way as they wrote the exception for the unemployed using the money for health-insurance premiums (actually collecting unemployment benefits for x weeks), that might be real cool. Did a lightweight search myself and couldn't find anything.

 

[ziggy29]

One of the potential new exceptions caught my eye: if you're unemployed. Seems like that could be a nice loophole, depending on how they write the law.

Interesting. If it means what I think it means, the proposal would allow people to use 72(t) for income if they become unemployed, and could stop before age 59.5 if they found work again?

It seems to me that a lot of the proposals out there are based on the feeling that unemployment will remain high -- and "real" unreported unemployment well into double digits -- for years to come. And with that comes the feeling that more "creative" ways to cope with long-term high unemployment are needed.

 

[jwkde]

And at the same time the Federal/State governments get income tax on the withdrawls

 

[jIMOh]

the 72(t) still "controls" the amount of the withdraw right (substantially equal periodic payments) using one of three methods to calculate...

right?

is this a loophole to work around

"substantially"
"equal"
or "periodic"

for anyone which wants to quit a job and FIRE?

 

[MasterBlaster]

the 72(t) still "controls" the amount of the withdraw right (substantially equal periodic payments) using one of three methods to calculate...

right?

is this a loophole to work around

"substantially"
"equal"
or "periodic"

for anyone which wants to quit a job and FIRE?

I am not certain, however I believe that they are referring to "hardship" withdrawals. Evidently they are considering adding unemployment to already covered medical, imminent foreclosure, college tuition, and to buy a primary residence definitions of hardship.

The "substantially" "equal" or "periodic" issues are how you can get money out without penalty absent a hardship

 

[ziggy29]

for anyone which wants to quit a job and FIRE?

But in reality, how many people who are truly using 72t to retire are going to stop taking income before age 59.5, anyway? Seems to me that most people who need to tap into some of their IRAs won't really have any other income sources available until they turn 59.5 (other IRAs and 401Ks available) or 62+ (SS eligibility).

About the only way I can see many FIREees needing 72t and stopping before 59.5 is if (a) they get a j*b to replace the income from 72t or (b) the market is so bad that they'd sooner tap non-retirement savings than "sell low" (if they are heavily invested and don't have cash/bonds in the IRA to sell first).

 

[jIMOh]

But in reality, how many people who are truly using 72t to retire are going to stop taking income before age 59.5, anyway? Seems to me that most people who need to tap into some of their IRAs won't really have any other income sources available until they turn 59.5 (other IRAs and 401Ks available) or 62+ (SS eligibility).

About the only way I can see many FIREees needing 72t and stopping before 59.5 is if (a) they get a j*b to replace the income from 72t or (b) the market is so bad that they'd sooner tap non-retirement savings than "sell low" (if they are heavily invested and don't have cash/bonds in the IRA to sell first).

Add in the possibility that if the storms were right, I could see doing the following:

1) one spouse working, one spouse FIREing
2) need for a one time distribution from IRA to cover mortgage or create a cash cushion to use for income gap

Meaning if one spouse lost job, and the family relied on 2 incomes, its possible to 72(t) to pay off mortgage or just withdraw ONCE to as to not deplete the savings entirely... pay off a mortgage, keep cash around because in 12 months I lose the unemployment qualification being discussed... or something like that...

 

[SecondCor521]

the 72(t) still "controls" the amount of the withdraw right (substantially equal periodic payments) using one of three methods to calculate...

right?

is this a loophole to work around

"substantially"
"equal"
or "periodic"

for anyone which wants to quit a job and FIRE?

That would be my hope. I doubt it will turn out that way...from what I've observed our esteemed Congressional representatives usually are very good at considering what loopholes people might come up with and plugging them tightly.

2Cor521

 

[jazz4cash]

For unemployed exception, it would be great if you could pay the funds back with pre-tax dollars when you found a job like an IRA hardship loan. Many unemployed folks get a severance payout including pension funds and don't have clue what to do other than use the funds it emergency fund is inadequate.