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72 T check
- Date of Birth:12/25/1968
- Age: 52
- Single/Married Married
- Annual cash needed year 1 (after taxes): $30,000
- Annual cash needed later years (after taxes): $30,000
- How are you planning on paying taxes? (withholding or quarterly estimates): Quarterly
- 72t Method: Amortization Method
- 72t Distribution Start Date: 01/15/2022
- Life Table Used: 31.4
- Stub Year (Y/N): N
- Annual Recalc (Y/N): N
- AFR Rate: 1.09
- 72t Account Balance(s) with account type (traditional IRA, Roth, SEP-IRA, SIMPLE-IRA, 401k, 403b, etc.): $845,000 now 12/31/21 TBD will use end of year balance for calculation.
- Describe other assets if applicable (taxable, Roth, other income, etc.) and how much is in each account. I have a Brokerage account with $200,000. A Roth IRA with $60,000 and my wife has an IRA with $395,000. Savings account $95,000.
Hello All and thank you for having this great site for setting up a 72T.
I plan on starting one in 2022. I will use the 12/31/2021 balance to calculate.
Using the $845,000 and AFR 1.09 the distribution would be $31,923.25?
So knowing this distribution amount I would just make a reoccurring annual withdraw on 01/15 of this until 2028?
Then just fill out the correct tax forms to designate these withdraws as a 72T exception?
Please check if I am missing something and thank you in advance.
I already see a mistake! I will turn 54 in the 2022 year.
In this case the Life table is 30.5. This results in a $32,714.21 distribution using the same numbers.
I was about to respond that you used the wrong age. The age to use is the age that you will become by 12/31 of the year of your 1st distribution.
But, that was not your only mistake. You should read the link at the top right of this website -- "2022 CHANGES". THERE WAS SUPPOSED TO HAVE BEEN A NEW TABLE AS OF 1/1/2021, BUT THE IRS DELAYED ITS USE UNTIL 1/1/2022.
At age 54 in 2022, the divisor will be 32.5, not 30.5. That will result in a lower Annual Distribution.
In addition, you indicated that you needed $ 30,000 (after taxes), and that you were going to pay your taxes by filing quarterly estimates. You did not indicate if this would be your only taxable joint income, or what your tax bracket would be. I am assuming that you will be in the 10% tax bracket because you are entitled to the joint Standard Deduction which will probbaly be $ 26,0000 by 2022, and that Qualified Dividends and Capital Gains would be taxed at -0-. Without other income, your Taxable Income will be about $ 4-$ 5,000, so the federal income tax will be minimal. If you need more money annually, you can have your wife set up her own SEPP 72-T.
If you were my client, I would also discuss your considering doing ROTH CONVERSIONS up to the 12% joint tax bracket limit from your wife's IRA, or from yours if you reduced your balance for the SEPP 72-T, and used her own SEPP 72-T. You did not indicate what your 2021, 2022, and future tax situations might be, but that would be worthwhile to consider. It might pay to use some of the brokerage account or Savings account to pay the taxes for the ROTH CONVERSIONS while you are in low tax brackets. If you have children, then you should also have term life insurance for each of you (or a 2nd to die policy) because under the SECURE ACT beneficiaries who are the next generation will be required to distribute your IRAs over no more than 10 years after the later death of you or your wife. That will mean that based upon current IRA balances, there will be distributions of at lest $ 125,000 per year to be taxed in addition to the income of your children. Under "normal" minimal growth of your IRAs at 6%/year, these accounts will DOUBLE in 12 years.
Great catch! New calculation would be $31,016.57.
Do I just withdraw this amount every year from my IRA account?
Taxes will be minimal. I currently make about $25,000 and my wife is about $20,000.
We will be relocating in about a year and a half and stop working. At that point we will have sold our home with around $200,000 profit. New home will be paid for. House profit, the brokerage account, and the 72T will be plenty of income for us until 59.5 with a very small tax rate.
Not interested in Roth conversion due to the low tax bracket I will be in.
No kids and no interest in life insurance.
Thanks so much for the advice, much appreciated.
Your low tax rate now and for the foreseeable future is exactly the reason to consider ROTH CONVERSIONS, if not now, then at least in 2 years when you move. When you retire in 2 years, then the first $ 26,000 of Taxable Income will not be taxed because of the Standard Deduction. In effect, this will make your SEPP 72-T tax free. You could do one or more ROTH CONVERSIONS at 10%-12% up to $ 106,000.
The sale of your house will not be taxable federally (possibly by the state you will be living in when you have settlement) because of the $ 500,000 exclusion.
Oh, so sorry. How exactly would the roth conversion work. I always under the impression that lowering your taxes in retirement negated the need for a roth.
Please explain. Thank you.
Whenever one of you dies, the survivor will be in the 22% tax bracket as a SINGLE taxpayer. In addition, if both of you live until you start to collect SS (which should be deferred until 70 in most marital situations), you could have significant taxable SS benefits, in addition to your RMD from your combined IRA accounts.
If you do ROTH CONVERSIONS in the 12% tax bracket until you are 72, then your cumulative taxes will be much lower than if you wait until 72 by which time your IRAs will be 150% of what they are now. At $ 2 million, your combined RMD would be $80,000/year, plus probably $ 30,000/yr or more from SS when you are 72.
Tax and financial planning professionals can show you why your "no ROTH CONVERSION" philosophy is flawed.
Excellent! thank you for the explanation. I was not aware you can do a roth conversion until I am 72. I have a roth IRA and can begin this year converting up to the 12% tax bracket limit.
Back to the 72T, do i just withdraw the calculated amount each year and file with the IRS? Is it that simple?
Thanks again for all of the help.