Is 72T bad idea at age 55 if only plan on 5 yr withdrawl

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birdoctor

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I am 55 1/2 and need appx 1k/mo for couple yrs to assist in some upcoming necessities. Still work P/T making good wage. Hope to continue for another 10. Actually enjoy the job. Figure 5 yrs will be all I need to tap into retirement. Why does this seem to freak people out. We are not rich by no means but have spent the last 30yrs saving for such situations. Anybody ever utilize the 72T for anything similar.
 
Recommend you Google the Mad Fientist blog. He just posted this week on creative ways to get at retirement income in tax-advantage accounts before 59.5. You might be interested in the Roth Conversion Ladder, for example. Good luck.
 
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If you need the cash, then you need it.
I don't see anything wrong with it, but be sure to split your IRA so that you have a special one to operate the 72t upon. That way dire emergencies can be met with the other IRA and only a 10% penalty.
The 72t rules are strict, which is why you want to split the IRA first (there is no limit on how many IRA's you can have).
 
Markola said:
Recommend you Google the Mad Fientist blog. He just posted this week on creative ways to get at retirement income in tax-advantage accounts before 59.5. You might be interested in the Roth Conversion Ladder, for example. Good luck.
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I just bookmarked that article a couple of days ago. Here is the direct link: How to Access Retirement Funds Early

OP, if you have a Roth IRA you may be able to withdraw the contributions anytime as mentioned in this article.
http://www.mymoneyblog.com/can-i-re...tions-at-any-time-without-tax-or-penalty.html
 
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I was hoping there would be something new at Mad Fientist blog , but not for me, so I'll mention another source of cash.

You would need to run the numbers for your situation to see if it works out for you.

Take out a HELOC on your house, so basically borrow against your house each year and after you turn 59.5 then you can pay off the borrowed money.
Advantages are initially as you borrow $1,000 per month the interest is low, no real need to yank out the full 5 years worth of money in the first month as you will pay way too much interest over the 5 years.
 
The Mad Fientist isn't one to use debt of any kind. HELOC loans can be called by the bank, sometimes due to change in the borrower's income and employment status, such as ER. Dave Ramsey argues against HELOCs in "Total Money Makeover," for example. I wouldn't risk my house this way, though folks have different risk tolerances and YMMV. If one plans to borrow to bridge the gap into retirement, at least compare the fine print between HELOCS, second mortgages and 401k loans.
 
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Other options:

would be reduce those ongoing expenses that if you really examine them are wasteful.
Perhaps you can go with pre-paid cell phones, and internet phones.
Lots of folks do over the air free HD tv instead of $120/mo cable.

Sell your house and rent a place instead, this will also free you up for the often considered move to a better place, warmer place, cooler place, smaller house, etc.

Are these couple of years - meaning 2 years of necessities, really necessities or simply wants ?
 
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I will only be pulling appx. 14k a year in equal monthly payments and will stop after 5 because I will be 61 1/2 and should still be working my P/T gig. Total taken close to 75k. If I make 2% on that IRA for that period it ends up about a 40k reduction. Problem is Fidelity management is no better then my 4 yr old grandaughter at managing money. But that said I have moved money to 3 different institutions and all I end up doing is breaking even after my fee. So I figure might as well leave it there because surely not everyone invested with Fidelety managed IRA's s are getting spanked. At least I'd like to hope not.
 
It's the fees that really take out a chunk and some places are higher than others, and some funds those places put you into are very expensive.

If you are not sure about your situation.
You could detail out what funds your IRA is in at the Bogle head forum or even here and folks can tell you if it's good or not.

I have seen one place take 2% yearly fee, plus put a person into 20 different funds each with their own expenses and all this on a $100K IRA.
As I know this fellow, I got him to move it to Vanguard to save the $2,000 a year fee and then put it into a few index ETF's at expense rates of .15 to .05 , saving him about another $500 in fund expenses each year.
 
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I would really like to find a place that could get me 4-5% returns. I'm not even sure that's realistic. I would rather not play with the money its just not something I want to do that often. Problem is who do you trust that actually would offer such a managed portfolio. If you have any suggestions we are very open to them. I am not afraid to move the money as I have told everyone who has managed it I will pull it if all i'm doing is making your house payments. Apparently they don't care. And I have been moving it but its getting old. The Vanguard thing may be something to look at. I would appreciate any info anybody has to offer. Thank you very much for the responses.
 
Birdoctor, a lot of folks on this forum follow a low-cost largely-passive/index style of investing. Here's a good starting point for learning how to manage your own investments: https://www.bogleheads.org/wiki/Getting_started

As for a 72t, it definitely is an option. Sunset pointed out some strategies (ex splitting up the IRAs and only SEPP-ing one of them). Here's another bogleheads article that may be helpful: https://www.bogleheads.org/wiki/Substantially_equal_periodic_payments

You mentioned people freaking out over your prospect of doing one. Part of that could come from the non-traditionality of the 72t strategy and in early retirement in-general. If you've formed and tested your plan well, who cares what others think... unless its your spouse ;)
 
Thanks ya'll I will be checking these out. I don't totally mind managing my money I just am not interested in playing the market. Like watching and studying stocks and things like that. I will resesrch these siggestion before I 72T it up. Thanks again.
 
I'm surprised the Mad Fientist article didn't point out that you can withdrawn $ from your employer's 401k between the ages 55 and 59 1/2, penalty free, as long as you were employed with them at age 55. May not apply in your situation since you are still working P/T.
 
I do still work P/T for the same employer but im in the aviation business and change is always lurking and I would rather not go full time again as I have been in the business 40 yrs but still like playing with the planes. I know you cant just sit around when you retire or you won't be around long. This said the little extra cash from the 72T will maybe be the difference from me having to go back full time and chase the dollar again.
 
401K plans typically allow loans. Since you are still working for the same employer that has your 401K - this seems like a better solution than a 401K withdrawal and 10% penalty. There are some downsides - you will need to pay back the loan in full if fired. Also, check with your employer on the tax rate for the loan distribution.
 
Trooper said:
I'm surprised the Mad Fientist article didn't point out that you can withdrawn $ from your employer's 401k between the ages 55 and 59 1/2, penalty free, as long as you were employed with them at age 55. May not apply in your situation since you are still working P/T.
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The Mad Fientist is in his 30s and writes for that cohort, mostly. Commenters to his post quickly pointed out that 55+ route, which is what I'll likely do myself 5 years from now, relative geezer I apparently am :)
 
Started my 72T when I was 55 and have no regrets. Wasn't that hard to set up but just make sure you know the rules as the IRS will scrutinize returns because the 1099R will be coded as a 1 (normal distribution) in box 7. You will need to complete a 5329 form to show you are taking the 72T and don't have to pay the 10% penalty. There are plenty good resources on the net about how to calculate a 72T and it's not a bad idea to have an accountant give you a sanity check on the numbers. Just to be safe I continued my 72T distribution for six years just to cover my butt. Oh, and the IRS did send me letter questioning my 72T in the second year but was happy with my response.
 
Markola said:
The Mad Fientist isn't one to use debt of any kind. HELOC loans can be called by the bank, sometimes due to change in the borrower's income and employment status, such as ER. Dave Ramsey argues against HELOCs in "Total Money Makeover," for example. I wouldn't risk my house this way, though folks have different risk tolerances and YMMV. If one plans to borrow to bridge the gap into retirement, at least compare the fine print between HELOCS, second mortgages and 401k loans.
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I don't think that statement is correct... a bank has no right to call a HELOC unless it is in the contract... they would have to abide by the contractual terms of the HELOC.
 
Fair enough. Correction: "HELOC loans can be called according to their specific terms."
 
But you aren't getting it... there usually is not any right for a bank to call a HELOC... once they have funded the HELOC as long as you pay according to the contract there is nothing they can do to call/accelerate the loan, so I don't understand what the alleged "risk" is.
 
Markola said:
Here's what Dave Ramsey says about HELOCs, which is enough for me. YMMV:

The Total Money Makeover: Pay Off the Home Mortgage - The Simple Dollar





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From the link:
Think of it this way. You’re using your home equity loan as an emergency fund. You lose your job, so you take out $30,000 to live on – it’s fine, since you have tons of equity in your home, right? Well, the end of the year comes and you still don’t have a job. The bank says, “Sorry, we’re not renewing your loan,” and they call in the $30,000. You don’t have it. They repossess your house. Any equity you built up is gone.
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A fundamental lack of knowledge of how HELOCs work... the bank cannot "call in the $30,000".
 
pb4uski said:
But you aren't getting it... there usually is not any right for a bank to call a HELOC... once they have funded the HELOC as long as you pay according to the contract there is nothing they can do to call/accelerate the loan, so I don't understand what the alleged "risk" is.
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They may not be able to call the loan but they can and have cancelled borrowers ability to take additional draws against the equity if they believe the home value has declined. If this occurred when a borrower had an emergency the funds may not be available and that's the risk, I believe. If you had a very large % of equity available the risk would be reduced.


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