New 72t setup comments

L1: New 72t setup commentsI’m looking to start a new 72t in early 2010. I am a 54 year old male (will turn 55 by CY’2009 end) and I was laid off in May of this year. I have a 401K that has now been moved by direct transfer to a Rollover IRA of about 400K. Using my 2010 age of 56, and the projected January rate of 3.10%, I calculate a payoutusing the Amortizationmethod of $1770. without using joint life calculations (my wife is 52). I will use the year-end value of this account and ask for 60 monthly payments starting in either January 2010, or slightly later in the year, if rate changes look to be moving back higher. I will fill out the paperworkto code for the 72t exception.My thought process is this. Most of my liquid assets of about $500K (includes the Rollover IRA) out of a total of $560K, are IRA assets.The other $60K is available for monthly expenses. If I get a new job at a high rate of pay, I can save these payouts, and it helps add balance to my portfolio, even though I need to pay taxes on the distributions. If no jobs are forthcoming, the $1770. provides a decent baseline for monthly income. My wife is only part time employed, and does not have insurance benefits, either.Any comments, orsuggestions, would be appreciated. This is a good site, I have been lurking for several years, particularly when I started having concerns about being laid off from my job.2009-11-09 20:00, By: SLW, IP: [68.204.234.152]
L2: New 72t setup commentsLike most people starting 72t plans, the amount of future salary potential is very much unknown at this time. You might replace the income or have to accept something for less, but you also need to be concerned with preserving as much of these retirement assets as you can for the more distant future.You might delay the start of your plan in 2010 to reduce the need to bust the plan later if you land a good paying job. With a new position, even if you set aside the max in a 401k, your taxable income plus your 72t distribution would cost you too much in taxes. To avoid that, pushing back the start date may allow you to avoid a 72t plan altogether if you land a good job. Since you can still distribute the full annual amount in 2010 regardless of start date, you canprobably replace the after tax money you spend between now and starting the plan.If you start the plan and THEN land a job, you can volutarily bust the plan and if you do that early on, you will save far more in taxes than you will pay in penalties. If you land the job much later, then you might consider making the one time switch to the RMD method to reduce the 72t payout and preserve IRA assets rather than busting the plan. You will just have to re visit the situation as things change in the next 5 years, but you DO have options.You could have taken penalty free distributions directly from your 401k plan because you met the age 55 separation requirements, butperhaps the plan would not offer flexible distributions. This a moot point now because the IRA rollover is done.You also have other penalty exception possibilities to explore under Sec 72t. There are exceptions for medical costs and also for the costs of health insurance if you collect unemployment for at least 12 weeks. There is a COBRA subsidy from the Govt as well that I believe is being extended now. Use of these other exceptions may also allow you to avoid the penalty, but timing and understanding all of them is important to planning.In summary, you probably should have 3 goals here:1) Avoid the early withdrawal penalty for IRA distributions2) Do not lose too much to income taxes by having 72t distributions and income from a new job at the same time3) Preserve as much of your IRA assets as possible in the meantime.Try to keep all 3 goals in mind as you work through this.2009-11-09 22:13, By: Alan S., IP: [24.116.165.60]