I’ve been reading about 72(t) and there’s a lot of, “you should hire a CPA to do this because if you mess it up, it’s bad.” But I’m looking at the details and it doesn’t seem that bad?
I’m hoping others here can confirm that my understanding of how this work is right.
Here’s how I think it works using the fixed amortization method.
Let’s say I want ~50k of income starting in 2028. This requires an IRA balance of around 800k. I will roll this amount into an IRA from where I will take withdrawals. I will not add anything else to this IRA after starting SEPP.
I turn 55 late in 2028, but I will take my first withdrawal at the beginning of the year, when I’m still 54. My single life expectancy factor is 31.6, based on the IRS table for age 55, since I will turn 55 in 2028.
I’ll use an interest rate of 5%, since that’s a default option.
If I use the fixed amortization formula, I get $50,890.72 a year. I confirmed this with an on-line calculator and using my own calculation.
I withdraw that amount for 5 years: 2028 until 2032. That meets the 5 year minimum requirement. For 2033, I don’t have to make the withdrawal since that is the year I turn 59.5. Is that right?
For each year of withdrawals, I will receive a 1099-R with box 7 distribution code of 1, early distribution, no known exception. Is that right? I will then have to file form 5329, and on line 2 specify an exception of 2, for a SEPP distribution, to avoid the 10% penalty.
And I think that is it? Am I missing anything?
I’m hoping others here can confirm that my understanding of how this work is right.
Here’s how I think it works using the fixed amortization method.
Let’s say I want ~50k of income starting in 2028. This requires an IRA balance of around 800k. I will roll this amount into an IRA from where I will take withdrawals. I will not add anything else to this IRA after starting SEPP.
I turn 55 late in 2028, but I will take my first withdrawal at the beginning of the year, when I’m still 54. My single life expectancy factor is 31.6, based on the IRS table for age 55, since I will turn 55 in 2028.
I’ll use an interest rate of 5%, since that’s a default option.
If I use the fixed amortization formula, I get $50,890.72 a year. I confirmed this with an on-line calculator and using my own calculation.
I withdraw that amount for 5 years: 2028 until 2032. That meets the 5 year minimum requirement. For 2033, I don’t have to make the withdrawal since that is the year I turn 59.5. Is that right?
For each year of withdrawals, I will receive a 1099-R with box 7 distribution code of 1, early distribution, no known exception. Is that right? I will then have to file form 5329, and on line 2 specify an exception of 2, for a SEPP distribution, to avoid the 10% penalty.
And I think that is it? Am I missing anything?