72T, 401K, Fidelity and Vanguard.

[limpid lizard]

I rolled my pension into Vanguard. It is sitting in a MM acount pending decisions. My 401K remains with Fidelity. I can draw from my 401K without a 72T.

The investment options within my 401K are not as varied as they are at Vanguard and the costs are higher. I'd really rather move the money to Vanguard, but detest the idea of the 72T.

My question is twofold. Is the 72T something I should be terrified of? Does the idea of holding the funds in two accounts to avoid the 72T make sense?

I owe about 40K on a house with a value of about 165K. The is no other debt and there is about 200K at F and 400K at V.

I'm thinking compromise. Take the monthy needs monetary amount, multiply it by the amount of months until I am 59.5 and leave it at Fidelity. Transfer the rest of it to Vanguard.

My appointment with the Vanguard advisor is Monday 6/4, and I want to have this thought through before hand.

 

[theoldwizard]

I rolled my pension into Vanguard. It is sitting in a MM acount pending decisions. My 401K remains with Fidelity. I can draw from my 401K without a 72T.

The investment options within my 401K are not as varied as they are at Vanguard and the costs are higher. I'd really rather move the money to Vanguard, but detest the idea of the 72T.

I'm confused. You must be more precise with your terminology if you want accurate answers.

First, you say you "rolled" your pension into Vanguard. If you had a "tradition pension", you could not roll it over. A traditional pension has a monthly pay out for the rest of you and your spouse's life and is guaranteed by the Pension Benefit Guaranty Corporation

Second you say you draw from your 401k without a 72T then you ask about a 72T. Why ?

3 questions

1. Are you truly retired ?
2. What year and month did you retire ?
3. When, year and month, were you born ?

The answer to these question will determine if you need to do a 72T.

 

[Kamwak]

I will be in the same boat as you. I am planning on rolling my pension and take distributions from my 401K until I am 59 1/2...the 72T while an option...I do not like the lack of flexibility. Also my profit sharing plan...while it doesn't have a lot of options (S&P Index, Foreign index, Russel 2000 Index, etc.)...has a very low expense ratio (.20%).

 

[cute fuzzy bunny]

We rolled my wifes pension into an IRA, I suspect its much the same beastie.

Everything you ever wanted to know about 72t's.

Retire Early: Can I withdraw money from my IRA before age 59½ ?

I'm sure intercst will be willing to answer any specific questions if you PM him at his board.

In a nutshell, it can be a great option for an early retiree to simplify and reduce taxes to capital gains rates later in life, rather than taking withdrawals as income. Lot of planning on the tax parts and making sure the withdrawals are done correctly though.

I looked it over a couple of times and decided to defer a decision for a few years.

 

[limpid lizard]

Three answers, whether I am truly retired depends on whether the money holds out. I am 55 as of last Feb, and I retired last March.

The pension was a lump sum payout calculated by expected life span times monthly entitlement etc.. It went to Vanguard where I also have a small Roth.

I do not think, and I may be wrong, that I can move the 401K monies at Fidelity to Vanguard and access them without a 72T. As I said, I would rather move the money to Vanguard, hence the question about the 72T.

Currently, I am living on local savings. I have not set up withdrawls through either Vanguard or Fidelity. The decision to move the money from Fidelity may well be the decision about whether or not I need a 72T.

 

[USK Coastie]

Limp, consult your 401k folks as to how it is structured, Depending on how it is set up some 401K's will allow equal peridoic withdrawls from them with no 10% penality. You must be over 55 and sever your employment with the company where the 401k is. You won't need a 72t for withdrawls form the 401k unless the plan is structured so that it has to be rolled into your IRA to get a distribution. Whatever the 401k folks say get it in writing.

 

[theoldwizard]

The pension was a lump sum payout calculated by expected life span times monthly entitlement etc.. It went to Vanguard where I also have a small Roth.

OK. Disclaimer. I am not a CPA, tax consultant, lawyer (but my gut is bigger Bill Shatner and I don't wear a rug ) and I am only liable for what money you pay me

I'm not real familiar with lump sum distribution of a pension. My guessing that your lump sum was rolled into an traditional IRA, if not, you are going to get a big tax bill. (Not directly related, but why did you take the lump sum instead of monthly payments ?)

I do not think, and I may be wrong, that I can move the 401K monies at Fidelity to Vanguard and access them without a 72T.

You can not open a new 401K by yourself (which is what you are asking to do). Only your employer can do so and you are not employed. You can roll a 401K into a IRA (not Roth). Where that money is held (Fidelity or Vanguard) does not matter.

I am 55 as of last Feb, and I retired last March.

To make certain I understand you correctly, you turned 55 in Feb 2007 and retired in Mar of 2007.

You sound like you are a bit "iffy" on whether or not you can "maintain a desirable lifestyle" on you "local savings".

Here is my advice, worth every penny you are paying for it !

Assuming your 401K plan allows you to keep those funds in the plan at Fidelity (not every plan allows this), leave your 401k alone ! Do not roll it over into anything else, period. Because of your age at retirement, these funds qualify for a special "additional tax" exemption. You can withdraw as much as you want, whenever you want and are only subject to "regular taxes". No fuss, no muss, no 72T (again, your 401K may say that you may not take partial distributions, in which case, everything I just told you won't work, but that depends on the specifics of your 401K plan)

Go to the IRS web site and look up Tax Topic 558. The important part says

The following additional exceptions (to additional taxes) apply only to distributions from a qualified retirement plan other than an IRA:

1. Distributions made to you after you separated from service with your employer, if the separation separated from service with your employer, if the separation occurred in or after the year you reached age 55

​

 

[limpid lizard]

There is no "iffy" about it, the local savings run out very early in 2008 at the current expenditure rate. There is not much more to cut back without selling the house and moving to a cheaper area.

I took the lump sum as the monthly amount was going to look mighty paltry in about 30 years due to inflation erosion.

The company altered my retirement plan to the extent that if I had continued working, I would have been basically working for free. I would have had income, but my retirement was being reduced yearly and increases in wage or longevity no longer counted towards increasing my retirement.

It is no problem leaving my 401K where it is. I can take withdrawls as I wish. The investment options are rather limited though, and my only motive for moving it would be to enhance my investment options.

It looks as though my best choice is to leave the money in the 401K at Fidelity. The limited investment options are mitigated by not needing the 72T and the exemption from the 10% penalty.

I had a much better plan in place, but by the time I dealt with a divorce due to the ex's misbehavior, this is what was left. Sometimes one plans and plans, and then life happens. Looking at the big picture, I am better off over all, but I have got to come up with a workable financial plan based on today's assets.

Retirement at 55 was my goal, now I have to figure out how to make it work under altered circumstances. You are correct, I turned 55 in 2/07 and retired after 31 years with the same company in 3/07.

 

[HFWR]

I vote leave the 401k at Fido, where you can withdraw w/o the hassles of 72t.

Sounds like your "basics" at Fido are a good start. Round out your allocation with funds at Vanguard.

 

[theoldwizard]

It is no problem leaving my 401K where it is. I can take withdrawls as I wish. The investment options are rather limited though, and my only motive for moving it would be to enhance my investment options.

It looks as though my best choice is to leave the money in the 401K at Fidelity. The limited investment options are mitigated by not needing the 72T and the exemption from the 10% penalty.

This sounds like a reasonable plan, but you still might want to consult a professional.

For your money in Vanguard, I suggest that you get "aggressive" and tell your Vanguard person that. No more than 30-40% in "fixed income" (CDs, bonds, etc), perhaps as low as 20%. 60% in mutual funds and I suggest you look at sector mutual funds, especially gas and oil related, commercial real estate and international. Whatever is left, you can buy some stock or go crazy and play options. This strategy has netted me over 10% return on my money for the past 4 years and though I watch the market and read news, I am not making frequent changes (except the few options I own !)