Join Early Retirement Today
Reply
 
Thread Tools Search this Thread Display Modes
Old 12-14-2020, 11:30 AM   #21
Recycles dryer sheets
 
Join Date: Aug 2020
Posts: 136
Quote:
Originally Posted by Cybertruck View Post
I am starting a 17 year long 72t plan and am really concerned that I will do something wrong to bust the plan.
I did some math and if I bust the plan in year 17 I could owe the IRS $300,000 in penalties & interest.
I’m hoping someone with knowledge on 72t’s can confirm that I am doing everything correctly.

TIRA balance = $1,500,000
My 1st withdrawal will be in the first couple weeks of 2021.
My beginning balance will be determined on 12/31/20.

My current age is 42, but I will be turning 43 next July. I have been told to use the age that I will be turning in that year to calculate my life expectancy.

Using the single life RMD method, a theoretical TIRA balance of $1,500,000 on Dec. 31st 2020, and an age of 43 my distribution amount should be $36,855.

I will recalculate my withdrawals each year using the new account balance on Dec. 31st of the previous year and the age I will turn in that year.

TD Ameritrade has informed me that they will characterize the distribution as an exception to the early withdrawal penalty so the only reporting I should need to do is the additional income I’ll need to report from the 1099 TD Ameritrade will send me each year.

I know that I have to take the RMD every year until age 59 1/2.
I know that I cannot touch the account other than that.

Is there anything I am missing?
I’m considering a 72t.

What specifically is your concern? Hypothetically, what would you do to “bust” the plan?
chassis is offline   Reply With Quote
Join the #1 Early Retirement and Financial Independence Forum Today - It's Totally Free!

Are you planning to be financially independent as early as possible so you can live life on your own terms? Discuss successful investing strategies, asset allocation models, tax strategies and other related topics in our online forum community. Our members range from young folks just starting their journey to financial independence, military retirees and even multimillionaires. No matter where you fit in you'll find that Early-Retirement.org is a great community to join. Best of all it's totally FREE!

You are currently viewing our boards as a guest so you have limited access to our community. Please take the time to register and you will gain a lot of great new features including; the ability to participate in discussions, network with our members, see fewer ads, upload photographs, create a retirement blog, send private messages and so much, much more!

Old 12-14-2020, 12:27 PM   #22
Dryer sheet wannabe
 
Join Date: Jan 2020
Posts: 24
Here is one example:

I will be taking my distributions on Jan. 7th of each year. Next year i will be 42 years old on Jan. 7th so you would think I would use that age to determine my distributions.
But instead you use the age you will be turning in that year. This one miscalculation can bust the entire plan.

As much money as I will have on the line in possible penalties and interest with a busted 17 year long 72t plan I want to make sure I know all of these tiny little details.
Cybertruck is offline   Reply With Quote
Old 12-14-2020, 01:14 PM   #23
Give me a museum and I'll fill it. (Picasso)
Give me a forum ...
SecondCor521's Avatar
 
Join Date: Jun 2006
Location: Boise
Posts: 5,224
Quote:
Originally Posted by zinger1457 View Post
When I first looked at your calculation the number seemed low ($36K from $1.5M) but looking at the 120% midterm interest rates it definitely explains why, it's near the lowest it's ever been at .58%. The same 72t calculation 12 months ago would have resulted in $54K. Seems like a low return for $1.5M but if you're good with the amount it definitely reduces your chances of running dry which would be unlikely at even much higher rates.
OP is using the RMD method and is 42 years old. That means that (a) the midterm AFR doesn't matter, and (b) the withdrawal amount will start pretty low depending on which table one uses (I thought there was only one but it looks like there are at least two).
__________________
"At times the world can seem an unfriendly and sinister place, but believe us when we say there is much more good in it than bad. All you have to do is look hard enough, and what might seem to be a series of unfortunate events, may in fact be the first steps of a journey." Violet Baudelaire.
SecondCor521 is online now   Reply With Quote
72t PLR question
Old 02-05-2021, 05:46 PM   #24
Confused about dryer sheets
 
Join Date: Oct 2012
Location: Manassas
Posts: 8
72t PLR question

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

Quote:
Originally Posted by Cybertruck View Post
No. Another method may be used in a private letter ruling request, but, of course, it would be subject to individual analysis.”
This effectively became an open invitation to taxpayers for the submission of new methods not currently found in Revenue Ruling 2002-62. Although the operative language in the recently approved private letter ruling does not explicitly say so, this PLR effectively create a new method #4, outside the boundaries of the Ruling, making annual recalculation with the amortization148 concept an approved method149
blue.zapfel is offline   Reply With Quote
Old 02-05-2021, 06:08 PM   #25
Full time employment: Posting here.
 
Join Date: May 2008
Posts: 615
I've taken a good look at using 72t because I'm close to when I would consider using one. I think it is a decent, though slightly more time-consuming option for you since the withdrawal amount is reasonable, even if inflation kicks up, despite the extremely low mid-term interest rate that the 72t starting amount is based upon.

For a majority of people though, the current extremely low mid-term rates are a huge problem, resulting in the maximum possible amount coming from a 72t being a lot lower than they need for income, because the only option that doesn't rely on the mid-term rates, RMD, is almost always an even smaller amount for awhile even under low interest rate scenarios. This means they need to sometimes/often do roth conversions anyway, making the 72t mostly pointless for them. Also, once you start the 72t, you cannot stop it, so if for some reason you have to go back to work, you are going to have a lot of extra income you do not want.

Personally I will be doing a roth conversion ladder during the years my taxable accounts are not producing enough taxable gains, and forgoing the extra complications of a 72t.
plex is offline   Reply With Quote
Old 02-05-2021, 06:21 PM   #26
Give me a museum and I'll fill it. (Picasso)
Give me a forum ...
SecondCor521's Avatar
 
Join Date: Jun 2006
Location: Boise
Posts: 5,224
Quote:
Originally Posted by blue.zapfel View Post
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.
__________________
"At times the world can seem an unfriendly and sinister place, but believe us when we say there is much more good in it than bad. All you have to do is look hard enough, and what might seem to be a series of unfortunate events, may in fact be the first steps of a journey." Violet Baudelaire.
SecondCor521 is online now   Reply With Quote
Old 02-05-2021, 06:55 PM   #27
Confused about dryer sheets
 
Join Date: Oct 2012
Location: Manassas
Posts: 8
Quote:
Originally Posted by SecondCor521 View Post
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-a...t-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 is offline   Reply With Quote
Old 02-05-2021, 08:41 PM   #28
Confused about dryer sheets
 
Join Date: Oct 2012
Location: Manassas
Posts: 8
In case anyone is interested, found this page with a very useful spreadsheet and references to the PLR's.

https://retireearlyhomepage.com/amort2004.html
blue.zapfel is offline   Reply With Quote
Old 02-06-2021, 09:04 AM   #29
Recycles dryer sheets
 
Join Date: Feb 2012
Location: vinton
Posts: 125
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.
mckittri2000 is offline   Reply With Quote
Old 02-06-2021, 02:19 PM   #30
Dryer sheet wannabe
 
Join Date: Jan 2020
Posts: 24
Quote:
Originally Posted by blue.zapfel View Post
"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-a...t-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.
Cybertruck is offline   Reply With Quote
Old 02-06-2021, 03:06 PM   #31
Confused about dryer sheets
 
Join Date: Oct 2012
Location: Manassas
Posts: 8
Quote:
Originally Posted by Cybertruck View Post
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.
blue.zapfel is offline   Reply With Quote
Old 02-06-2021, 03:26 PM   #32
Give me a museum and I'll fill it. (Picasso)
Give me a forum ...
SecondCor521's Avatar
 
Join Date: Jun 2006
Location: Boise
Posts: 5,224
Quote:
Originally Posted by Cybertruck View Post
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.
__________________
"At times the world can seem an unfriendly and sinister place, but believe us when we say there is much more good in it than bad. All you have to do is look hard enough, and what might seem to be a series of unfortunate events, may in fact be the first steps of a journey." Violet Baudelaire.
SecondCor521 is online now   Reply With Quote
Old 02-06-2021, 04:44 PM   #33
Confused about dryer sheets
 
Join Date: Oct 2012
Location: Manassas
Posts: 8
Quote:
Originally Posted by SecondCor521 View Post
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.
blue.zapfel is offline   Reply With Quote
Old 02-06-2021, 07:35 PM   #34
Dryer sheet wannabe
 
Join Date: Jan 2020
Posts: 24
Quote:
Originally Posted by SecondCor521 View Post
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.
Cybertruck is offline   Reply With Quote
Old 02-07-2021, 09:17 AM   #35
Thinks s/he gets paid by the post
zinger1457's Avatar
 
Join Date: Jul 2007
Posts: 2,634
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.
zinger1457 is offline   Reply With Quote
Old 02-07-2021, 11:14 AM   #36
Dryer sheet wannabe
 
Join Date: Jan 2020
Posts: 24
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/
Cybertruck is offline   Reply With Quote
Reply

Tags
72t, early withdrawal, penalty-free withdrawals, sepp


Currently Active Users Viewing This Thread: 1 (0 members and 1 guests)
 
Thread Tools Search this Thread
Search this Thread:

Advanced Search
Display Modes

Posting Rules
You may not post new threads
You may not post replies
You may not post attachments
You may not edit your posts

BB code is On
Smilies are On
[IMG] code is On
HTML code is Off
Trackbacks are Off
Pingbacks are Off
Refbacks are Off


Similar Threads
Thread Thread Starter Forum Replies Last Post
To 72T or not to 72T Mkling Hi, I am... 16 04-12-2019 04:44 AM
Maxing out pretax and taking 72t vs. taxable and no 72t whipsaw Young Dreamers 3 07-29-2014 07:26 AM
To 72t or not to 72t, that is the question. nun FIRE and Money 12 05-18-2011 04:50 PM
FA - great on paper, poor on execution LOL! FIRE and Money 33 02-29-2008 07:58 PM
is my assumption correct? (for my distribution plan) albundyz FIRE and Money 2 03-08-2007 07:35 PM

» Quick Links

 
All times are GMT -6. The time now is 12:40 PM.
 
Powered by vBulletin® Version 3.8.8 Beta 1
Copyright ©2000 - 2021, vBulletin Solutions, Inc.