Aeowyn
Recycles dryer sheets
I'm considering "retiring" from my current job in the near future. I've started looking at the 72t option of taking money out of your IRAs before 60 to avoid the 10% penalty. As I understand it, once I choose this option there is a set amount I can take out each year based on the prior end of year value and the life expectancy tables (and alternative method of using a conservative growth rate).
I'm 45 years old now and will have a military reserve pension kick in when I'm 60. I have both Traditional and Roth IRAs.
My question is this: Can I use the 72t option on the total of all my IRAs and then pick which ones I want to take the money out of? Since I have a taxable pension kicking in when I turn 60, if we have low income years prior to that I'd like to maximize the amount from the Traditional accounts. On the other had if we have a really good year (husband self employed and we'll be starting a small farm), then I might want to take the money out of the Roth.
That brings up another question. If I choose the 72t option but then have earned income, am I still allowed to put an annual contribution into my IRA?
I'm more concerned about low income years and getting the tax-deferred money out (My goal is to maximize the 15% tax bracket on our taxes each year based on the current tax system). So if I have to take the money out evenly between the IRAs, I suppose one way around this would be to "convert" funds from Traditional to Roth at the end of the year when I know how I'm going to stand tax wise.
We have ~2/3 of our IRAs in Roth accounts. As I understand it, we can take out our Roth Contributions and Conversions (as long as it's been 5 years) before 60 without tax or penalty. If this is true, then it seems that I might want to just forget about the 72t option. If I want to get money out of a Traditional IRA, I'll just take that amount out of a Roth IRA and then convert the same amount from the Traditional account to the Roth account. This way I'm not tied to a certain amount each year. I'd also be able to better control what I use from tax-deferred, tax-free, and unsheltered accounts.
Please let me know if my understandings are correct. I'd like to have our Roth contributions grow as long as possible, but if I know we have the option to take out our contributions before 60, then I'll feel more comfortable about drawing down on our non-sheltered savings.
I'm 45 years old now and will have a military reserve pension kick in when I'm 60. I have both Traditional and Roth IRAs.
My question is this: Can I use the 72t option on the total of all my IRAs and then pick which ones I want to take the money out of? Since I have a taxable pension kicking in when I turn 60, if we have low income years prior to that I'd like to maximize the amount from the Traditional accounts. On the other had if we have a really good year (husband self employed and we'll be starting a small farm), then I might want to take the money out of the Roth.
That brings up another question. If I choose the 72t option but then have earned income, am I still allowed to put an annual contribution into my IRA?
I'm more concerned about low income years and getting the tax-deferred money out (My goal is to maximize the 15% tax bracket on our taxes each year based on the current tax system). So if I have to take the money out evenly between the IRAs, I suppose one way around this would be to "convert" funds from Traditional to Roth at the end of the year when I know how I'm going to stand tax wise.
We have ~2/3 of our IRAs in Roth accounts. As I understand it, we can take out our Roth Contributions and Conversions (as long as it's been 5 years) before 60 without tax or penalty. If this is true, then it seems that I might want to just forget about the 72t option. If I want to get money out of a Traditional IRA, I'll just take that amount out of a Roth IRA and then convert the same amount from the Traditional account to the Roth account. This way I'm not tied to a certain amount each year. I'd also be able to better control what I use from tax-deferred, tax-free, and unsheltered accounts.
Please let me know if my understandings are correct. I'd like to have our Roth contributions grow as long as possible, but if I know we have the option to take out our contributions before 60, then I'll feel more comfortable about drawing down on our non-sheltered savings.