Correct execution of a 72t plan?

[SecondCor521]

How do you interpret this? Would I need to get my own private letter ruling? I wouldn't even know where to begin and I think it's expensive.

I hope not... I guess I'm not understanding the how the PLR effectively created a new method #4, outside the boundaries of the Ruling.

I'm planning to start a 72t this year, for the next 10 years and was going to use the fixed Amortization method, but the mid-term rates are far to low for me. If the ruling is true, then I could recalculate when the mid-term rates are higher, also, would I then also calculate on the newer account value, I wonder.

I've been planning this 72t for over a year and I continue to be very worried I'll screw up and owe penalty on 9 years of withdrawals.

Thanks for this most informative post, I likely would have never know about this PLR.

TIA

You can rely on a PLR if it's for you. You are not supposed to rely on another taxpayers PLR. This is presumably because you may think your situation is the same as the other taxpayer but it may not be the same in the eyes of the IRS.

I would not implement a 72(t) plan that I didn't fully understand.

You might consider a Roth conversion ladder or a 72(t) using one of the other two methods. The other two methods might result in a higher withdrawal amount.

 

[blue.zapfel]

You can rely on a PLR if it's for you. You are not supposed to rely on another taxpayers PLR. This is presumably because you may think your situation is the same as the other taxpayer but it may not be the same in the eyes of the IRS.

I would not implement a 72(t) plan that I didn't fully understand.

You might consider a Roth conversion ladder or a 72(t) using one of the other two methods. The other two methods might result in a higher withdrawal amount.

"Supposed to" - That's what I'm asking, because what I'm "really" reading is, it's fine to do because of all the previous PLR's .

Although the holding of a private letter ruling is non-binding to any taxpayer other than the recipient taxpayer, practitioners often view the holdings as an indication of the IRS position on a certain issue.

I do understand 72t, I'm just a worrier. I want to make sure I've thought of and comprehend everything.

I don't think a ROTH conversion ladder is financially smart for me to do, plus I need the $ before 5 years. - the SEPP comes out far ahead in the scenarios done here - https://www.madfientist.com/how-to-access-retirement-funds-early/

I am considering doing both if my IRA account value is enough to split and still allow a large enough SEPP withdrawal.

Thanks and Cheers!

 

[blue.zapfel]

In case anyone is interested, found this page with a very useful spreadsheet and references to the PLR's.

https://retireearlyhomepage.com/amort2004.html

 

[mckittri2000]

Your calculations seem correct based on Bankrate's calculator. I'm in year 3 of 5 of my 72t and the only thing I would caution is to make sure you file IRS form 5329 every year with your taxes. I also attach a copy of the calculation sheet for the SEPP.

 

[Cybertruck]

"Supposed to" - That's what I'm asking, because what I'm "really" reading is, it's fine to do because of all the previous PLR's .

Although the holding of a private letter ruling is non-binding to any taxpayer other than the recipient taxpayer, practitioners often view the holdings as an indication of the IRS position on a certain issue.

I do understand 72t, I'm just a worrier. I want to make sure I've thought of and comprehend everything.

I don't think a ROTH conversion ladder is financially smart for me to do, plus I need the $ before 5 years. - the SEPP comes out far ahead in the scenarios done here - https://www.madfientist.com/how-to-access-retirement-funds-early/

I am considering doing both if my IRA account value is enough to split and still allow a large enough SEPP withdrawal.

Thanks and Cheers!

You do not need your own personal PLR for the annually recalculated amortization method.
I talked to Alan at Ed Slott & Company & William J. Stecker, they are both specialists in this field. If anyone knows the answer, it is them. They both told me it is a perfectly valid method to use.
I understand your reluctance to accept this as fact. Any mistakes can be disastrous for a long term 72t plan.

If you want confirmation from the source, and I would encourage it as it will give you piece of mind, email William J. Stecker ( wjstecker@wispertel.net ) or go over to the message boards at Ed Slott & company.
I went to William for help with my 72t plan and He actually helped me figure out a much better way to get my money out of my retirement accounts.
If you’re wondering who he is, he wrote A Practical Guide to 72t's, https://retireearlyhomepage.com/rpt003e4.pdf
It is a great source of info for 72t plans.

 

[blue.zapfel]

You do not need your own personal PLR for the annually recalculated amortization method.
I talked to Alan at Ed Slott & Company & William J. Stecker, they are both specialists in this field. If anyone knows the answer, it is them. They both told me it is a perfectly valid method to use.
I understand your reluctance to accept this as fact. Any mistakes can be disastrous for a long term 72t plan.

If you want confirmation from the source, and I would encourage it as it will give you piece of mind, email William J. Stecker ( wjstecker@wispertel.net ) or go over to the message boards at Ed Slott & company.
I went to William for help with my 72t plan and He actually helped me figure out a much better way to get my money out of my retirement accounts.
If you’re wondering who he is, he wrote A Practical Guide to 72t's, https://retireearlyhomepage.com/rpt003e4.pdf
It is a great source of info for 72t plans.

Cybertruck -

Thanks for more great info! So glad I found this thread, I feel so much more at ease now. I will reach out to him for sure! I'm very curious to talk to him about getting $$ out of retirement accounts.

 

[SecondCor521]

You do not need your own personal PLR for the annually recalculated amortization method.

Just curious...

So this annually recalculated amortization method would be the same as the regular method except I assume that you probably recalculate with the new interest rate and the new life expectancy and the new account balance?

I'd also assume that you'd have to recalculate every year (i.e., not selectively recalculate some years and not others) and that you'd have to use new rate/expectancy/balance consistently.

I wonder if there is any flexibility in terms of month of the year. Could I recalculate for 2021 in July, but then recalculate in September of 2022? I'd guess it would have to be the same month every year.

 

[blue.zapfel]

Just curious...

So this annually recalculated amortization method would be the same as the regular method except I assume that you probably recalculate with the new interest rate and the new life expectancy and the new account balance?

I'd also assume that you'd have to recalculate every year (i.e., not selectively recalculate some years and not others) and that you'd have to use new rate/expectancy/balance consistently.

I wonder if there is any flexibility in terms of month of the year. Could I recalculate for 2021 in July, but then recalculate in September of 2022? I'd guess it would have to be the same month every year.

quoting the PDF linked -

Now that we know how to effectively plan the use of an annually recalculated plan,
how do we tactically implement correctly? Fortunately, the operative language in the PLRs is
essentially the same as found in the Information Letter of 2000. In this regard:
(1) All three variables must be updated simultaneously when recalculating.
(2) All three variables must be updated as of the same day each year. Theoretically, any
day of the year is an acceptable day; however, month-ends, quarter-ends and year-ends
are recommended as this may be the only time that external evidence is available to
“prove up” an IRA balance.
(3) No methodology changes are permitted; simply a substitution of new values and the
resultant computation.

 

[Cybertruck]

Just curious...

So this annually recalculated amortization method would be the same as the regular method except I assume that you probably recalculate with the new interest rate and the new life expectancy and the new account balance?

I'd also assume that you'd have to recalculate every year (i.e., not selectively recalculate some years and not others) and that you'd have to use new rate/expectancy/balance consistently.

I wonder if there is any flexibility in terms of month of the year. Could I recalculate for 2021 in July, but then recalculate in September of 2022? I'd guess it would have to be the same month every year.

You are correct. Mid term rate, life expectancy, and account balance must be recalculated every year.
Account balance and mid term rate should be calculated at the same time each year.
Also note that your age used for determining life expectancy should be the highest age that you will attain in that year.

 

[zinger1457]

I would fell uneasy about using the suggested method without having my own PLR in hand. The referenced PDF does seem like a useful document but it is old (2004), makes me wonder if it has been an acceptable method for so long why doesn't the IRS list it as one of the available options. The IRS is clear that any PLR issued is not to be used as a precedent for any other case.

 

[Cybertruck]

http://72tnet.com
This link will take you to 72tnet.com
It is a great resource for everything 72t. You can post questions in the forum section there.

You can also find a link to William J. Stecker’s, A Practical Guide to 72t, there.
http://72tnet.com/a-practical-guide-to-sepps/