Good News on my 72T

[winger]

Just wanted to share this with those who understand what the hey I'm talking about.

On May 25, I turned 59.5 and have had 7 equal yearly payments. DW completed hers 2 years ago- she is old.

FYI, we have more $$ in our VG accounts than when we started withdrawals.

 

[REWahoo]

I get it - and understand why you are justified in celebrating. Congrats!

 

[jeeper]

Good job Winger!

Question for you: Is the proper procedure to start a 72T to use calculator on government website, then draw that amount from IRA? At tax time, include amount in overall income, and be taxed accordingly (without 10% penalty?)

 

[Russman]

That's fantastic to hear. I actually just started my first 72T draw this year after taking ER in July of last year (I'm 54). Read so many articles about it all over the internet (particularly the 72T site) and spoke to several financial and tax planners and the IRS, ran all the calcs myself and cross checked 'em with the online calcs - and still felt pretty nervous about it (you probably know what I'm talking about since you've gone through all of that).

To hear of someone actually ending up with more in their account even after accounting for the regular distributions gives me some promise for the future. It means your allocation of investments exceeded your distribution amount. Which is exactly what I am hoping for (fingers crossed).

Can I ask (if I'm not being too pushy)...what was your asset allocation mix.
I'm curious what other folks are using between the ages of 53-59.

My current allocation (all in a couple of IRAs)

48% domestic stock (various Vanguard funds)
9% foreign stock
18% intermediate bonds (various Vanguard funds)
25% cash
7% other (reit fund)

At the moment, I'm really nervous with the potential pullback of the QE policies.
That could cause both the stock market and bond funds to undergo a major correction during the next quarter.....

Thoughts anyone ?

 

[MRG]

Congratulations to the OP. Nice work.
MRG

 

[winger]

Good job Winger!

Question for you: Is the proper procedure to start a 72T to use calculator on government website, then draw that amount from IRA? At tax time, include amount in overall income, and be taxed accordingly (without 10% penalty?)

When we started ours, there wasn't much info on the IRS website. I used the calculators at 72.net, and went a little to the conservative side.

The IRS has pulled (audited?) our returns twice, wanting us to pay the 10% penalty. Vanguard shows early withdrawal (code 1) on your 1099R, even though you need to file a form with them to start the 72T. IRS sees that as a big red flag, that some one under 59.5 is withdrawing early. There is a form you have to fill out every year and file with your taxes. In my case, it didn't seem like it was noticed. Honestly, when I called the IRS, the people I talked to didn't have a clue about 72Ts or the form I had filed. Vanguard was no help, they didn't want any part of it. Both times the IRS found in our favor, after I re-filed the form (5349). There was much trauma involved the first time.

We had Vanguard withhold taxes at our effective rate. Yes, it's taxed as regular income.

 

[winger]

Can I ask (if I'm not being too pushy)...what was your asset allocation mix.
I'm curious what other folks are using between the ages of 53-59.

At the moment, I'm really nervous with the potential pullback of the QE policies.
That could cause both the stock market and bond funds to undergo a major correction during the next quarter.....

Thoughts anyone ?

I don't mind. The folks on this site have been a huge help to me over the years. I'm mostly a lurker, so it's nice to give back a little.

We have 4 different accounts at VG, 2 lump-sum retirements from megacorp, and our individual 401s. We used the lump sums for 2 different 72Ts. To make this all work, we had to take more of a risk than we should. We needed 7% return a year, and be able to live off our 72Ts.

The risk was fine with us until about October of 2008. DW folded first, she wanted her money out of the market. We put her accounts in MM. I didn't make any changes in mine at that time. Before the crash we were 65-70% slice and dice stock funds, 20-25% bonds, and 10% MM.

Once you get out, then it's hard to know when to get back in. To me- it was harder than getting out. What is the bottom? Can it get worse?

Anyway, we got back in, but with less risk. DW now has her money in the 2015 fund, with her 401K in Wellington. I moved mine to the 2020 fund, and my 401 in Wellington. It's low maintenance, and has worked for us.

The next pullback, we hope to just keep on with our plan. It's easy to say that now, but gut-wrenching when you have 5 figure losses in a day.

 

[Russman]

Thanks, Winger, for the reply on your allocation.

Noticed that you mentioned getting audited by the IRS. I hear that happens often (because the brokers like Vanguard and Fidelity code the 1099 as code 1). What kind of backup did you need to provide on the actual audit to convince the IRS .

 

[Snowcat]

Just wanted to share this with those who understand what the hey I'm talking about.

On May 25, I turned 59.5 and have had 7 equal yearly payments. DW completed hers 2 years ago- she is old.

FYI, we have more $$ in our VG accounts than when we started withdrawals.

Great news. It is nice to hear it worked for you with minimal IRS issues.

We are planning to retire based on availability of 72t.

Which of the three withdrawal methods did you use?

You mentioned taxes. It is my understanding that qualified dividends could be at 0% if ordinary rate is 15%. Seems like that could greatly reduce our expenses and keep us in the aca subsidy area. Any comment?

 

[winger]

What kind of backup did you need to provide on the actual audit to convince the IRS .

The first time, I sent everything I had to show that all the rules were followed, along with several follow up phone calls. It seemed like I knew more about 72T than anyone I spoke to. In frustration, I called the IRS Taxpayer Advocate for my area. After a short time, she called back to let me know they needed form 5329. They didn't have it. It was with the electronic form I had, so I just re-submitted that form. Problem solved. It was a long summer.

Second audit looked the same. I called the person on the IRS form, and asked if they had received form 5329. He said no, so I resubmitted it. End of problem.

 

[audreyh1]

Congrats! Considering you started in 2006, right?, that's a great result.

I have to admit I'm glad we have enough funds in our taxable accounts we didn't have to do this (even though we get to pay taxes on those accounts every year whether withdrawing or not).

 

[winger]

You mentioned taxes. It is my understanding that qualified dividends could be at 0% if ordinary rate is 15%. Seems like that could greatly reduce our expenses and keep us in the aca subsidy area. Any comment?

Distributions from a qualified plan are treated differently than funds invested outside a plan. My understanding is that distributions from a qualified plan are treated as ordinary income, regardless of source.

Do some research. I only have a basic knowedge of tax rules that apply to us.

 

[winger]

Which of the three withdrawal methods did you use?

I can't recall the name of the method we use. The info is on hard-copy in our safe deposit box. It was the method that gave us the largest distribution, but I dialed the amount back to keep us in the 15% bracket. My thought was we could use the one permitted change to lower the amount if we were depleting our funds too quickly.

 

[Russman]

Distributions from a qualified plan are treated differently than funds invested outside a plan. My understanding is that distributions from a qualified plan are treated as ordinary income, regardless of source.

Do some research. I only have a basic knowedge of tax rules that apply to us.

Hey thanks Winger. I concur...Based on what I've researced, distributions fron a 72t IRA are taxed as ordinary income.

 

[jeeper]

Thanks Winger for your honest experiences with the 72T program!

 

[frayne]

Congrats, I went the 72T route back in 2006 and I am still taking the same amount although I will back it off when I start to collect SS later this year. Also went through IRS exception letter ordeal and sent them the paperwork and had no problem explaining without the phone calls. The IRS form people are referring to is the 5329, and line two should show the 02 code for taking SEPP.