Just Want To Confirm - 72t Distribution

[Dog]

I've decided to implement 72t distributions. Going with minimal distribution for 5 years (I'm 57). Working with Vanguard Rep to get monthly distributions to NFCU checking account ($ cost avg in reverse). Started process in mid January and it is taking a bit longer than expected (this is new process for my Rep and he has fumbled a bit). However, he says it should be ready to go early next week.

I just want to confirm that I will take the annual amount and divide by 11 months now in order For the amount to equal the total annual amount that the minimal distribution calculation dictates......right?

Probably a silly question and I hope it makes sense but I just want to be accurate and not be penalized 10% by IRS.

Thanks for the second set of eyes



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[jim584672]

From 72t on the Net | SEPP, 72t, and /72q Distributions

SEPP Distribution Amount. Once you have set the assumptions (age, interest rate, distribution method) you must take the calculated annual distribution, no more and no less. Converting the annual distribution to another mode (example monthly) and then rounding may result in variance of $.50 from the annual amount which is OK.

Since you are 57 it seems like a lot of hassle to go through a 72t for only 2.5 years of income.

 

[Dog]

Thanks Jim. Just a sanity check.

I hear what you are saying, but I would be accessing IRA anyway at 59 1/2.
My IRA is by far the largest portion of our nest egg (not including paid off home), so I don't mind drawing it down some before RMD kicks in later.
DH retires in June 2016, so will shift portion of distributions to our Roths until he retires. After that we will probably save leftover funds to CDs.


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[zinger1457]

If there are delays just make sure you're using the correct interest rate in you're calculations, the maximum allowed usually changes from month to month.

From 72t.net:
The interest rate that may be used is any interest rate that is not more than 120 percent of the federal mid-term rate for either of the two months immediately preceding the month in which the distribution begins.

The maximum interest rates where the initial plan distribution occurs during the following time periods are: 02/01/2015 - 02/28/2015: 2.10%

 

[Beech Bum]

There is also a five year rule with which you need to be familiar. I suggest you closely review the posts on 72t.net. The fact that you will turn 59 1/2 before you have run your 72t for five years does not matter, you still need to run the 72t for 5 full years.

 

[nvestysly]

I've decided to implement 72t distributions. Going with minimal distribution for 5 years (I'm 57). Working with Vanguard Rep to get monthly distributions to NFCU checking account ($ cost avg in reverse). Started process in mid January and it is taking a bit longer than expected (this is new process for my Rep and he has fumbled a bit). However, he says it should be ready to go early next week.

I just want to confirm that I will take the annual amount and divide by 11 months now in order For the amount to equal the total annual amount that the minimal distribution calculation dictates......right?

Probably a silly question and I hope it makes sense but I just want to be accurate and not be penalized 10% by IRS.

Thanks for the second set of eyes



Sent from my iPhone using Early Retirement Forum

I started my 72t distributions last year and Fidelity was not very helpful when it came to distributing my first year amount over a period of something less than 12 months and then changing the amount the following year(s) to make the annual amounts consistent. Not saying that they wouldn't have been able to do it for me but I was not comfortable with their responses so I decided to take a single, annual amount, once a year, distributions. My distribution arrives early in the year so I have lots of time to make corrections if the amount is not correct.

I chose to put the annual, single payment into a separate account and then take monthly amounts from that account into my day-to-day checking account. I'm not recommending this approach but it works for me.

 

[Sunset]

I hope you have another IRA , so you are more flexible with withdrawls/emergencies.

 

[Dog]

Thanks Beech Bum, I researched 72t on 72t.net and met with a CPA. I know that I am obligated for 5 years and am fine with that.

Sunset, I have a 401k as does DH. We also have a nice amount in CDs and a healthy savings account for emergencies.


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[48Fire]

I just want to confirm that I will take the annual amount and divide by 11 months now in order For the amount to equal the total annual amount that the minimal distribution calculation dictates......right?



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I think whatever amount you take this year needs to be the same amount each year, regardless of what month you take it out. It is a yearly distribution. That is all the IRS will care about come tax time.