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- Date of Birth: 7/14/1978
- Age: 42
- Single/Married Married
- Annual cash needed year 1 (after taxes): $0
- Annual cash needed later years (after taxes): $150k-$200k
- 72t Method: RMD
- 72t Distribution Start Date: 1/7/2021
- Life Table Used: single life
- Stub Year (Y/N): no
- Annual Recalc (Y/N): yes
- AFR Rate: N/A
- 72t Account Balance(s): $1,500,000
- until recently I had 100% of my life savings in retirement accounts. I have $4.5 million in my Roth IRA. This year I withdrew $100,000 from my TIRA through Covid Relief and $98,000 from my Roth to jumpstart my taxable brokerage account. I was also able to add another $60,000 from income and about $70,000 from investment appreciation, so I now have $330,000 in my taxable account. My goal is to build that account balance quickly with 72t withdrawals and investments in stocks. I would like to retire in 2-3 years using my 72t withdrawals and my taxable account to supplement. I am self employed so I can extend my working years if needed, but my job is very dangerous so I would like to retire as soon as possible(especially since I have more than enough money to retire now, I just can't access it). I have averaged 43% annual stock returns over the last 10 years so I am counting on considerable appreciation of my taxable account & my TIRA account. I realize my Roth & my TIRA(once I start 72t) will basically be locked until I reach age 59 1/2 so i rolled over some of my TIRA funds to a 2nd TIRA account for emergencies.
- I will calculate my 72t starting balance on 12/31/2021. Assuming it is still $1,500,000, I have calculated my 1st year distribution to be $36,855. The distributions will be recalculated every year, withdrawn on Jan. 7th, and Dec. 31st of the prior year will be used to calculate the account balance.
- Do you have any knowledge on using the amortization method and recalculating your distributions annually? William J. Stecker wrote, in A Practical Guide to 72t's, that it is legally possible. I also asked Alan at Ed Slott & Company who also said it was possible. It just goes against most everything I have read online, so I am a little leery about using it.
The internet and "people" is not always the best place to get professional advice. Both of the people you referred to at the bottom of your posting are better references. The people online are probably only aware of the RMD method which requires an initial ANNUAL amount to be calculated based upon the initial balance. The amortization method of recalculating the amount for the following calendar is an acceptable alternative approach.
I think that you have an inconsistency between your input and narrative, and therfore have a typo in your input and/or narrative. Your input shows a starting distribution date as 1/7/2021, while your narrative says you will be using the 12/31/2021 balance. I think that you meant 12/31/2020.
Also, you indicate that you will be using the RMD method, and then indicate Yes as to recalculation. I think you should have indicated the Amortization method for your input.
- You are correct. I should have said the balance will be determined on Dec. 31st 2020 for the first distribution.
- I am still not sure if I’m comfortable using the variable amortization method, so I’m sticking with the RMD method for now.
- How do I find a professional to help me with this? I feel like they would have to have some super in depth knowledge of 72t’s to be of any help. I don’t think the average CPA is going to have that.
Lots of luck finding a CPA, EA (Enrolled Agent) or Financial Planner knowledgeable in this area. I think that's why Bill Stecker started the original website a number of years ago. While some tax preparers may know that this is one of the exceptions to the 10% Early Distribution penalty, they do not have a clue on its nuances or how it can be a planning tool, or when it should not be used or how it can be busted and the severe consequences.
You certainly may use the fixed amortization method; e.g. calculate once and take the same annual distribution for 5 years. Annual recalculation is also permissible per the IRS, and is considered an sub-methodology of the fixed methodology.
TheBadger (DEVELOPER OF THE ORIGINAL 72T WEBSITE)
wjstecker@wispertel.net
2007-09-11 07:38, By: TheBadger, IP: [72.42.67.103]
Hello All:
This is "thebadger". My real name is William J. Stecker; the original author of "A Practical Guide To Substantially Equal Periodic Payments And Internal Revenue Code §72(t)". First, a little history:
1. The original website: www.72t.net was not developed by me. Gordon Weis (out of Chicago) built and owned the original site approximately 25 years ago (back when IRC §72(t)(2)(A)(iv) distributions were more or less the wild, wild, west of the IRA distributions.
2. I helped Gordon in a couple of areas: (a) the computational formulas and mathematics of the three methodologies; (b) a couple of semi-scholarly articles on SEPP's, IRS's attitudes, Revenue Ruling 2002-62 interpretations, PLR analysis, etc.
3. Gordon decided a couple of years ago to effectively retire and spend more time sailing his boat ---- good for him. I believe whomever runs this website www.72tnet.com is now carrying the torch forward in the same vein: free and as best possible unbiased 72(t) information.
Moving forward there are a couple of topics worth covering:
1. There are four versions of the guide. If you are looking at anything other than the 4th edition, burn it. If you are looking at the 4th edition (1st published in 2004) you are more-or-less in good shape at least in regard to SEPP distributions. Obviously, if you are looking at other distribution surtax exceptions of more recent vintage; e.g the CARES act exception, then the guide is of little to no help.
2. My intent is the guide is free. If there is a copy here great; if not someone please contact me and I will send in a copy.
Finally, I have been a practicing CPA for over 40 years. I have now scaled back my practice to SEPP planning and a few other federal tax specialties. I am now down to one employee --- me. If you need or want my help or just want to chat for 10 minutes all of my contact information is below.
Regards
William J. Stecker, CPA
The Marble Group, Ltd.
332 South Michigan Avenue
Suite 1032 #M29
Chicago, Illinois 60604
wjstecker@wispertel.net
themarblegroup@wispertel,net
(312) 361-0221 (office)
(720) 556-5485 (cell)
Bill's book A Practical Guide to Substantially Equal Periodic Payments and Internal Revenue Code Section 72(t), 4th edition dated 2004 has been uploaded to the 72tnet.com website at https://72tnet.com/a-practical-guide-to-sepps/ . Or you can navigate to it from the Tools and Resources menu (2nd item in the list). Happy reading!
I just finished reading your guide. Thank you very much for making it accessible. I have been casually researching the SEPP process for a few years, but I will likely start one this year. Your guide is tremendously helpful. I actually feel like I can establish a "low-risk" plan on my own by following your suggestions. Seriously, your guide was a game-changer for me and I just wanted to let you know that your work is appreciated.
I totally agree! It is a goldmine of 72t information. I still can’t believe I was able to discuss my situation with the author himself.
I highly recommend contacting William Stecker if you have any doubts about using a 72t plan.
I had been researching 72t’s for a few years, even read through most of William’s 150 page pdf online( A Practical guide to SEPPS & 72t).
I knew almost everything there is to know about it and was dead set on using it to retire early.
After William considered my situation he presented me with an alternative option that will allow me to retire earlier, I won’t have to worry about busting a 72t plan for the next 17 years, I will pay less taxes over my lifetime, and I will have the flexibility to change things if I need to.
Couldn’t be happier!!
