Longest 72t

[nun]

I have 7 years left on my mortgage and enough in after tax accounts to live off for 4 years....but then they'll be empty and there'll still be a 3 year mortgage gap to fill. I have a reasonable amount in various IRAs and was thinking of "72t"ing. With the extra money I'll be able to pay off the mortgage and have enough left in after tax accounts to live off well past 59.5. I'm 48 so I'd have the 72t for 11.5 years, has anyone done a 72t for this long? I worry about market swings and the mandatory withdrawal nature of the 72t

 

[ziggy29]

I have 7 years left on my mortgage and enough in after tax accounts to live off for 4 years....but then they'll be empty and there'll still be a 3 year mortgage gap to fill. I have a reasonable amount in various IRAs and was thinking of "72t"ing. With the extra money I'll be able to pay off the mortgage and have enough left in after tax accounts to live off well past 59.5. I'm 48 so I'd have the 72t for 11.5 years, has anyone done a 72t for this long? I worry about market swings and the mandatory withdrawal nature of the 72t

It sounds like your main concern is being forced to take 72(t) withdrawals, even if the market sucks and you'd rather not have to sell low?

I feel dirty saying it (and I don't necessarily recommend it), but rolling part of an IRA into a 10-year fixed annuity and taking 72(t) from that would remove some of the "sell low" risk, but at the cost of locking yourself into 4.5% to 5% returns for a decade. (Surrender charges are often waived if you are withdrawing less than 10% of the balance each year, and 72(t) withdrawals in your 50s would be well under 10%.

Again -- not advocating this, but depending on your level of risk aversion over the next 10-12 years, it's out there. At the end of the 10 years, the balance in such an annuity would probably be less than the original amount you put in 10 years earlier, so combining that with inflation would mean a significant drop in that piece of the retirement savings. As you can see, in scared and uncertain times, the cost of "security" is very high.

 

[nun]

It sounds like your main concern is being forced to take 72(t) withdrawals, even if the market sucks and you'd rather not have to sell low?

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That's not exactly my concern, it's the catastrophic scenario of depleting the IRA so an annuity might be the way to go. I'd have to 72t half of my IRA savings to make it work so I'd end up with half in an annuity and I could put the other half into stock index funds to keep a reasonable asset allocation. Once the mortgage is paid off the house starts producing income as I rent out half of it. That, along with the annuity income, would cover my expenses and then the after tax money and the equity index funds in the other half of the IRA would be producing gravy. And at 62 I'd get SS and a small pension....I'm tempted...

 

[ziggy29]

That's not exactly my concern, it's the catastrophic scenario of depleting the IRA...

The thing is, the potential for being forced to sell low *is* the most likely reason 72(t) would deplete an IRA. So it really is the same concern, IMO, merely approached from a different angle.

 

[nun]

The thing is, the potential for being forced to sell low *is* the most likely reason 72(t) would deplete an IRA. So it really is the same concern, IMO, merely approached from a different angle.

Agreed, I suppose there's low and really low, it's a matter of degree.

 

[skyvue]

I am interested in replies to this because the vast majority of my assets are in my 401k and an IRA. I would like to retire at 50 but use 72t distributions to supplement my income for 9.5 years until I can officially withdraw from the 401k.

 

[eridanus]

Use the minimum method. At your age, it'll probably be less than a 4% withdrawal.

 

[fisherman]

Look at the 72T calculators and see how little you can actually get at current rates. I think it is now around 3% if you amortize. If you invest in Wellesley and do the 72T from that IRA you would be living of the dividends in all likely hood.

Another option is to roll money to a Roth. If you have had a Roth for five or more years you can take out the principal but not the gain without penalty before 59.5. This option can be done as needed so that you do not get locked into the 72T if the long term is an issue for you. You can also take the 72T money and fund a Roth when your finances allow so that you are really just doing a roll over in good years.

 

[nun]

That reduces my payment.....but I'd still have to tap IRA funds to pay that reduced amount

 

[ziggy29]

That reduces my payment.....but I'd still have to tap IRA funds to pay that reduced amount

You'd have to tap the IRA no matter what you do if you want to use it to generate income under 72(t).

 

[nun]

Look at the 72T calculators and see how little you can actually get at current rates. I think it is now around 3% if you amortize. If you invest in Wellesley and do the 72T from that IRA you would be living of the dividends in all likely hood.

I like that Wellesley option. The 72t interest rates I'm seeing are 2.5%...so pretty low and it would be just enough to supplement my income to get the mortgage paid off before I run out of after tax money. I feel ok about a WR of 2.5% from Wellesley.

Of course I could just semi-ER and get a part time j*b

 

[CyclingInvestor]

I started my 72t in 2006 when I retired at 48. Most of my assets are in IRAs. I use the annual recalc method, which results in me taking out about 3% this year. My IRAs are all individual stocks such as PG JNJ KO ADP SYY, which generate average dividends of about 3%, enough to fund the withdrawals without selling stock.

 

[nun]

I've been looking on various sites for the practicalities of doing a 72t, but can't find any help there. So what are the steps required to do a 72t from an IRA. Do I just call up my IRA custodian and say I want to do a 72t and then they calculate the annual income given the mid-term rate, my age and the IRA balance? When it comes to tax time do I get a W-2 with the withdrawals as income?

 

[REWahoo]

I've been looking on various sites for the practicalities of doing a 72t, but can't find any help there.

Did you look here? 72t.Net

 

[ziggy29]

I've been looking on various sites for the practicalities of doing a 72t, but can't find any help there. So what are the steps required to do a 72t from an IRA. Do I just call up my IRA custodian and say I want to do a 72t and then they calculate the annual income given the mid-term rate, my age and the IRA balance? When it comes to tax time do I get a W-2 with the withdrawals as income?

A custodian should help you walk through the details of using 72t.

You should probably keep a copy of any forms you have to fill out so you have evidence that these withdrawals are intended to be 72t withdrawals and not regular premature withdrawals subject to penalties. That would help in case the custodian sends you a 'bad' 1099-R (see below) or the IRS thinks you should owe a penalty on the distribution.

You don't get a W-2. You'd get a 1099-R. And if the withdrawal is properly coded as a 72(t) withdrawal (an exception to the early withdrawal penalty), it will show a '2' in Box 7 of the 1099-R.

Depending on how much in involved, you may want the custodian to withhold some regular income taxes on the distribution or else you might have to deal with estimated quarterly payments -- unless you'd still have enough withheld to meet the safe harbor requirements.

More here: http://www.72t.net/Sepp/Irc72tFAQ.aspx

[And no, I'm not a tax pro, this is not legal advice and it's worth what you paid for it...]

 

[CyclingInvestor]

I've been looking on various sites for the practicalities of doing a 72t, but can't find any help there. So what are the steps required to do a 72t from an IRA. Do I just call up my IRA custodian and say I want to do a 72t and then they calculate the annual income given the mid-term rate, my age and the IRA balance? When it comes to tax time do I get a W-2 with the withdrawals as income?

My IRA is at Schwab. I download the form off the website, fill in the amount, 'from' and 'to' account, check the no-penalty box, sign and mail it in. A few days later the $$ move from my IRA to my regular stock account. They do no calculations - my Excel spreadsheet takes care of that. I get a 1099 in January.