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04-09-2019, 04:35 PM
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#1
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Confused about dryer sheets
Join Date: Jun 2014
Posts: 6
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To 72T or not to 72T
Hi, I'm 52, live in Florida and have 1M in my retirement plan. 900k in employer plan and 100k in 403b. Ive been in and out of this forum for sometime and always appreciated the personal stories and advice given. After 30 years, I'm ready for my second act. I'm contemplating doing SEPP under IRS 72T rules. I understand if it's not set up correctly, penalties, penalties, penalties.
Can I roll my retirement into immediate annuity for this purpose instead of the 72T and receive payments without penalty before 591/2? I have also been told to stay away from annuties all together.
Other circumstances include my disabled wife and two in college. Of course my second act will have to include medical benefits.
Any advice is greatly appreciated.
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04-09-2019, 04:38 PM
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#2
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Thinks s/he gets paid by the post
Join Date: Mar 2012
Posts: 3,931
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https://www.immediateannuities.com/r...r-ira-or-401k/
Quote:
Q. I am under age 59 1/2. What tax penalties will apply to me?
A. If you are thinking of making withdrawals from your IRA or 401(k) but you are not yet age 59 1/2 you can avoid the 10% federal penalty tax by transferring your IRA or 401(k) into an immediate annuity with a "life contingent" payment option. If you receive the income periodically over your lifetime you may avoid the 10% penalty tax on the money you receive. Remember, that you must choose an annuity which will pay you over the course of your (or your and your spouse's) lifetime(s) and not an annuity which only makes payments for a limited period or term certain (for a specified number of years).
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04-09-2019, 05:47 PM
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#3
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Confused about dryer sheets
Join Date: Jun 2014
Posts: 6
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Thank you. Why do annuities have such a bad reputation?
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04-09-2019, 05:55 PM
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#4
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Recycles dryer sheets
Join Date: Feb 2012
Location: vinton
Posts: 128
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Ist year on SEPP Here
All you need to know is right here: https://72t.net/Home
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04-09-2019, 05:57 PM
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#5
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Recycles dryer sheets
Join Date: Nov 2015
Location: Fort Myers, FL & Lake Of the Ozarks, MO
Posts: 230
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I retired at 52, 5 years ago.... fortunately my wife was 59.5 and she to retired..... She rolled aprox 750K to an IRA, then setup two immediate annuities aprox 400k between the two, as we wanted to purchase another condo, but quickly found out, you had to have income to get a loan...... Long story short, we have income that continues until I turn 59.5, and when I turn 62..... I have my 401k 1.2Mil that I turned into an IRA, that is doing great through Fidelity (self managed), that I won't touch until I turn 59.5, if even then...... I looked at doing the 72T, but kept finding other ways of some income.....
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Live Life
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04-09-2019, 06:33 PM
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#6
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Thinks s/he gets paid by the post
Join Date: Aug 2015
Posts: 1,890
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Quote:
Originally Posted by Mkling
Thank you. Why do annuities have such a bad reputation?
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Not all annuities have a bad reputation. The only one recommended by people that I trust is a SPIA. Anything with variable or indexed in it is a cash cow for the seller.
A SPIA is useful, but it depends on why you are getting it and especially when. If you buy it young (<75), it generally has low returns. At 75, what they call mortality credits kick in and you can get some great returns. That's because the insurance company is betting you will die soon.
When you price a SPIA, don't let the high returns they show you distract you from the truth. They are showing you the return of principal in that. You can do the math and figure out what the real return is. Right now, a 15 year period certain SPIA might pay a 2% return. And the risk is that has no COLA, so you lose out to inflation every year. I think about a SPIA a lot just because I like the certainty of the whole thing. Then I run the numbers and see the return is 2% and a good MM fund is paying 2.4% and I go back to doing nothing.
So, only look at SPIAs and look hard at what you are really getting. If that fits your needs, then they are not a bad option.
__________________
Consistently sets low goals and fails to achieve them.
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04-09-2019, 06:56 PM
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#7
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Give me a museum and I'll fill it. (Picasso) Give me a forum ...
Join Date: May 2004
Location: SW Ohio
Posts: 14,404
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Quote:
Originally Posted by corn18
I think about a SPIA a lot just because I like the certainty of the whole thing. Then I run the numbers and see the return is 2% and a good MM fund is paying 2.4% and I go back to doing nothing.
So, only look at SPIAs and look hard at what you are really getting. If that fits your needs, then they are not a bad option.
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Also, don't neglect inflation. Most annuities today do not pay an inflation-adjusted return, and that means a real loss in spending power over the years. At least if you have your money in a CD ladder or short-term bonds, the interest will likely go higher if inflation does.
Right now interest rates are still very low by historical standards, which makes it a bad time to buy an annuity. If I needed an annuity (e.g. I was 75+ and had barely enough in investments to produce enough safe withdrawals to scrape by, so I really needed those mortality credits), I'd try to wait as long as possible and I'd investigate an inflation-adjusted annuity if I was in better-than-average health.
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04-09-2019, 07:41 PM
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#8
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Confused about dryer sheets
Join Date: Jun 2014
Posts: 6
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Interesting. However, I'm too young to think about mortality credits. I need a vehicle that allows me to get the most money now for the longest period of time, which addresses inflation. With my wife's disability payments and the SEPP, I believe we'll have 62k gross. I cant see us being able to have much of a retirement lifestyle on that alone. I'm going to have to find a job even if just to get medical benefits. I don't know anything about the ACA and don't know what that'll cost. Any advice on healthcare and the 72T as our sole income?
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04-09-2019, 08:24 PM
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#9
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Thinks s/he gets paid by the post
Join Date: Dec 2017
Posts: 2,551
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Lots of details regarding 72t here:
https://72t.net/72t/Planning/Pointers
Problem is, that the RMDs set up rely on life expectancies, which means your SEPPs may not throw off enough income to meet your needs. You need to calculate what your distributions can be (the different methods of calculating the SEPP provide different results).
If you have a 401(k), and your employer allows it, consider retiring in the year your turn 55, and you may be able to take penalty-free (but not tax-free) distributions.
Moral of this story is (for others), if you want to retire early, diversify your investments to include ROTH and post-tax accounts, so you won't have this problem.
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04-09-2019, 08:44 PM
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#10
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Recycles dryer sheets
Join Date: Oct 2013
Location: Chicago
Posts: 272
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I took the 72t at age 54. My situation (balances) were somewhat similar to the OP. Heavily in retirement accounts.Also supercharged the Roth via conversion at age 50(right after the GFC). Although I had some nervousness doing the 72t, I was somewhat smug with confidence given that I had a runway ahead should things go south.
Thanks to the additional income I was able to take a simpler and less paying job. Couldn’t be happier with the change. Besides, the 72t has helped me prepare better for the eventual RMD.
There you go, that’s my ringing endorsement of 72t. If I could turn the clock back 10 years I couldn’t have done it better.
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04-09-2019, 08:54 PM
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#11
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Full time employment: Posting here.
Join Date: May 2015
Posts: 528
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Quote:
Originally Posted by Mkling
Interesting. However, I'm too young to think about mortality credits. I need a vehicle that allows me to get the most money now for the longest period of time, which addresses inflation. With my wife's disability payments and the SEPP, I believe we'll have 62k gross. I cant see us being able to have much of a retirement lifestyle on that alone. I'm going to have to find a job even if just to get medical benefits. I don't know anything about the ACA and don't know what that'll cost. Any advice on healthcare and the 72T as our sole income?
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I would think you have some complications with 2 kids in college too if they are on your health insurance.
Your 72t will be about 44K it seems but then 10-12% for taxes.
https://www.bankrate.com/calculators...alculator.aspx
You would qualify from some ACA tax credit subsidies for 4 then 3 then 2 people as your kids age (>26) and if those stay around. That is likely $15K-$20K per year depending on usage of the amount of the high deduction plans.
You should really talk to a qualify HOURLY Financial Advisor.
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04-09-2019, 09:16 PM
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#12
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Thinks s/he gets paid by the post
Join Date: Nov 2013
Location: Twin Cities
Posts: 3,941
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Quote:
Originally Posted by HNL Bill
If you have a 401(k), and your employer allows it, consider retiring in the year your turn 55, and you may be able to take penalty-free (but not tax-free) distributions.
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This is what I was going to suggest - look into the Rule of 55. You don’t have to actually be 55, you just have to separate from your job in the calendar year in which you turn 55. My DW did this and was able to tap her 401k penalty free while she was still age 54.
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04-10-2019, 02:59 PM
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#13
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Thinks s/he gets paid by the post
Join Date: Dec 2017
Posts: 2,551
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Quote:
Originally Posted by Markola
This is what I was going to suggest - look into the Rule of 55. You don’t have to actually be 55, you just have to separate from your job in the calendar year in which you turn 55. My DW did this and was able to tap her 401k penalty free while she was still age 54.
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Exactly! Then you don't have to be tied to SEPPs, which might or might not fit your current and future needs!
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04-10-2019, 03:54 PM
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#14
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Thinks s/he gets paid by the post
Join Date: Jan 2018
Location: Elyria, OH
Posts: 1,937
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Quote:
Originally Posted by Markola
This is what I was going to suggest - look into the Rule of 55. You don’t have to actually be 55, you just have to separate from your job in the calendar year in which you turn 55. My DW did this and was able to tap her 401k penalty free while she was still age 54.
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55 or later.
Early 401k Distribution Options Including 72(t) - 401khelpcenter.com
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04-10-2019, 04:46 PM
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#15
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Thinks s/he gets paid by the post
Join Date: Aug 2015
Posts: 1,890
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Quote:
Originally Posted by gwraigty
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"First, this exception applies if you leave your job at any time during the calendar year in which you turn 55, or later, according to IRS Publication 575."
__________________
Consistently sets low goals and fails to achieve them.
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04-11-2019, 04:08 AM
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#16
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Full time employment: Posting here.
Join Date: Aug 2013
Location: New Jersey
Posts: 945
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I just wanted to point out the 72t Bankrate calculator that eroscott linked to above hasn't been updated for more than 2 years. Recalculating with the current 'Reasonable interest rate' of 3.10%, yields a 72t maximum of $49,213 per year.
The 72t plan seems like a good choice if $49,213 in yearly income is enough and you won't be able to withdraw more than this until you reach age 59 1/2.
If you want more flexibility, you could continue to work until age 55 and then withdraw whatever you want on a yearly basis from your 401K plan (not sure about the 403b). You will need to pay taxes on these withdrawals, but there is no 10% penalty. Working another 3 years will also give you more time to build-up your after tax balance (in a brokerage account and/or CD's).
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04-12-2019, 04:44 AM
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#17
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Confused about dryer sheets
Join Date: Jun 2014
Posts: 6
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Thank you all for the information. I cant wait until 55. I will endeavor to find either part time or a full time job with benefits. Any leads regarding part time work with benefits is welcomed.
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