72(t) Distributions

[mbnj77]

Howdy all, I am not sure why I am having so much trouble finding the answer to this but I surmise the answer is so obvious and right in front of me that I am missing it.

I understand the concept of taking 72(t) distributions and have found plenty of resources for calculating the amounts of the payouts. But how do you mechanically set this up? Is there paperwork to file? Does the IRA holder have a process for disbursing the payments? Do you simply estimate the payouts based on various on-line calculators and then file a form with your taxes so you don't get dinged with the 10% penalty?

Our later years look rock-solid but we need another bucket to fund some expenses for the gap until 59 1/2, (Rule of 55 won't work for us), and 72(t) seems like a viable option. Just not sure how to actually do it.

Thanks as always for any assistance.

 

[oneill225]

I think the experience will vary depending on which account you use for the SEPP withdrawals. I am taking money from our TSP account (a government run retirement account). TSP did the calculations for me after completing their forms and getting them notarized. They also recalculate the amount every year and adjust our payments, accordingly. I suggest you start by checking with the institution holding your funds to see if they offer a similar service.

 

[latexman]

I called Fidelity and they set up the whole thing. Rolled 70% of a 401k into an IRA. Set up the IRA for a 72t. Then, I got a check every Jan. 15. I collected 7 payouts and I'm over 59.5 years of age now, so I've stopped the 72t. It wasn't difficult.

 

[frayne]

I ran the numbers, had an accountant run the numbers and Fidelity run the numbers. I set up the SEPP withdrawals from my FIDO IRA and that is pretty much all there is to it. One caveat, make sure you understand the rules and ramifications for violating any of the 72T rules.

 

[mbnj77]

Terrific, I am also with Fidelity and did not realize it was that simple. Thanks very much.

 

[clobber]

I think the experience will vary depending on which account you use for the SEPP withdrawals. I am taking money from our TSP account (a government run retirement account). TSP did the calculations for me after completing their forms and getting them notarized. They also recalculate the amount every year and adjust our payments, accordingly. I suggest you start by checking with the institution holding your funds to see if they offer a similar service.

Could you expand on doing this from a fed? Did you ER with a deferred annuity and therefore needed SEPP? If you made it to MRA you would have had access to traditional TSP (even at 55-57). Just wondering if you are an ER Fed an how you made that work?

 

[oneill225]

I retired from the military at age 52, so the 55 option did not work for me. TSP does not refer to it as a 72(t) or SEPP (from what I can see). However, the option is found in the "Total Withdrawal" form (TSP-70). I elected the monthly withdrawal, 100%, and checked the box to have them calculate the payments. This is different than the "annuity" election.

This was a couple of years ago, so you should read the available materials discussing withdrawals on the TSP website. I believe they spell out that this is a penalty free way to get your funds out prior to age 55.

 

[latexman]

mbnj77,


Along with frayne's advice, it may be wise to create a new IRA for the 72t. Fund it using just enough $ to get the payments you want. Leaving some $ in your old account(s). Once the 72t starts, DON'T PUT $ IN OR TAKE $ OUT, except for the payment(s). The $ left in your old accounts can serve if you need emergency $'s.

 

[zinger1457]

I retired from the military at age 52, so the 55 option did not work for me. TSP does not refer to it as a 72(t) or SEPP (from what I can see). However, the option is found in the "Total Withdrawal" form (TSP-70). I elected the monthly withdrawal, 100%, and checked the box to have them calculate the payments. This is different than the "annuity" election.

This was a couple of years ago, so you should read the available materials discussing withdrawals on the TSP website. I believe they spell out that this is a penalty free way to get your funds out prior to age 55.

I didn't have to use it but I do recall reading somewhere that taking the TSP monthly withdrawal option based on life expectancy does meet the 72t requirements. The TSP annuity option also meets the 72t requirements but probably not the best choice.

 

[HI Bill]

Lots of great 72(t) info on this page, including calculators, advice, and the penalties for getting it wrong:

https://72t.net/72t/Planning/Pointers

 

[clobber]

I didn't have to use it but I do recall reading somewhere that taking the TSP monthly withdrawal option based on life expectancy does meet the 72t requirements. The TSP annuity option also meets the 72t requirements but probably not the best choice.

Interesting. Can you point me to where it might say that?

Edit: Found an article: https://www.fedsmith.com/2015/05/25/strategies-for-avoiding-the-tsps-early-withdrawal-penalty/

 

[zinger1457]

Interesting. Can you point me to where it might say that?

Edit: Found an article: https://www.fedsmith.com/2015/05/25/strategies-for-avoiding-the-tsps-early-withdrawal-penalty/

The TSP also put out a video about the 10% early withdrawal penalty which confirms it.

 

[clobber]

The TSP also put out a video about the 10% early withdrawal penalty which confirms it.

\

Thanks! Good to know that it is fairly easy to actually implement.