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Start a 72t to save on Tax's?
Old 12-01-2016, 12:28 PM   #1
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Start a 72t to save on Tax's?

Retired 8/2013, and am now 55.
Have 500k in an IRA and 125k in a Roth IRA's.
I wont be needing the money anytime soon.
Might not ever actually need it to survive.
I have a pretty low tax base now, as I am able to
live on much less than when I was working.
(Just a little background info setting up for the question):
Would it be a good idea to do a 72T now and say pull
$20k a year out over say 25 years and pay less in Tax's?
And move it to a post tax account? Or wait? And have to take out
larger chunks down the road that might put me in a higher tax bracket?
Low risk low return investments, so I don't see a huge advantage in waiting.
Thanks!
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Old 12-01-2016, 12:37 PM   #2
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Rather than a 72t, why not simply convert IRA money into the Roth.

Nice thing is you could move 25K per year, and if for some reason that was too much once you do your taxes , you could recharacterize some of it back to the IRA (you don't get any undo feature with 72t).
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Old 12-01-2016, 12:43 PM   #3
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If you might not ever need it, consider doing roth rollovers. Roll over enough from your tIRA to the Roth to stay in your desired tax bracket.
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Old 12-02-2016, 01:49 PM   #4
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You might want to wait before making any moves until the details of the new tax plan comes out. It may make sense to pay the tax bill now for a Roth conversion OR it may make sense to stay where you are if your effective tax rate turns out lower in the future. Also, if you go 72t, you will be locked in your plan for 5 years (or pay a heavy retroactive penalty to stop/change it).
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Old 12-02-2016, 02:15 PM   #5
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Thanks for all the sound advice.
It does strike me as odd sometimes to have saved for 30 years
in a 401K and Roth IRA. And then possibly never having access to any of the money.
LOL LOL
But will do what works out best. Just wanted to mention it.
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Old 12-02-2016, 02:20 PM   #6
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If you do a Roth conversion today, then you will have access to any of the converted amounts 5 years from now penalty free even if you are under 59 1/2 then.

BTW my plan to make it to 59 1/2 is to take distributions from our Roth IRAs if necessary.

I have been tracking my basis wrt contributions as well as conversions as is required by IRS Form 8606 Part 3 for those who wish to access these funds penalty free prior to age 59 1/2.

-gauss
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Old 12-03-2016, 08:47 PM   #7
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One thing to consider for either the 72t or the Roth is that if will affect your ACA subsidy for 2017. About 25% marginal rate (assuming your current income is less than 50K).

As to 72t vs Roth-I'd wait to see how the 2017 tax reforms shake out.

If you feel you must do something in 2016, do the Roth. Once you start the 72t, you're committed for 5 years minimum and it's expensive to change when the tax code (including the health insurance tax) changes.
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