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Hello,
I'm planning to begin a 72t plan this year. Here is my information:
- Date of Birth: Sept 20 1966
- Age: 54
- Single/Married: Single
- Annual cash needed year 1 (after taxes): 38k
- Annual cash needed later years (after taxes): 38k
- 72t Method: Amortization
- 72t Distribution Start Date: Oct 2020
- Life Table Used: Single Life
- Stub Year (Y/N):
- Annual Recalc (Y/N): No
- AFR Rate: .40
- 72t Account Balance(s): 1,230,000
Various calculators online give me a yearly withdrawal of 42,918.38 before taxes. Does that look right? I want this to be as easy to execute as possible, so I'm planning on taking my entire yearly distribution each year in October, and not recalculating. This money is needed for regular living expenses. The only non-retirement account I have is a 6 month emergency fund. I also have a 401k with ~600k in it. The 401k is from the same provider as the IRA (if that matters). I looked through the other exceptions to the 10% penalty, but I don't see any that would apply to me.
Thanks!
Since you have a 401-K, did the employer do his match with company stock ? Were any of your contributions invested in the company stock ? Are you still working for the company ? Do you plan to leave the company after 1/1/2021 ?
If the answers to these questions are yes, then you should look into the NUA (Net Realizable Appreciation) provision of the tax code, which is discussed elsewhere on this website. If you qualify, you could save a lot of taxes. I saved a client $ 100,000 on a $ 750,000 401-K plan !!!
It appears that you have taken into account the income taxes that you will owe on the distribution, either as a withholding or as estimated tax payments.
Have you considered the tax implication by adding the $ 43,000 to you 2020 taxable income, rather than delaying it until Jan 2021, and using $10,729.60 (i.e. 1/4 of the annual amount) or $11,000 from your "emergency fund" to get you to January ? On the other hand, if you have minimal other taxable income in 2020, then maybe taking it all in October might be a good tax plan. Have you reviewed your plan and figures with a qualified tax practitioner ? (Your calculations of $ 38,000 after taxes is correct if you have no other income in 2020.)
Thanks for the quick response!
I have no company stock in the 401k, and I no longer work for the company.
I don't have any taxable income so far in 2020. I'm still looking for a tax practitioner. I have talked to a couple of CPAs and financial planners, but they either wanted to manage my entire account before helping with the 72t, or had no experience with a 72t withdrawal.
Thanks again for the response.
Accountants/tax practitioners do not handle investments, unless they have Registered Investment Advisor criteria. I do not like financial planners/brokers who have managed accounts. I think that brokers are entitled to fees/commissions for buying and selling, especially if they make profits for you. I think that most taxpayers are doing well with Mutual Funds and ETFs, and most fund groups have "brokerage" accounts where their reps will make transactions in these investments. The provider where your accounts are now can probably service you well.
Since your tax situation is very straight-forward, and your SEPP 72-T plan seems appropriate, I don't think that you need an accountant with any of that expertise. You have thought out your situation very well.
