L1: 72tI will be 55 in Febuary and I was wondering what a person should do to retire. I have 1,400,000.00 in IRA and 500,000 in 401k and 300,000 in Waterhouse account. Would like to retire this year any thoughts on how to go about it.2011-01-17 06:26, By: hobo54, IP: [22.214.171.124]
L2: 72t1. Do it.
2. Ask your company if there is an company stock in your 401-K plan.If so, ask them for the cost basis. There is a special tax provision for this if it has appreciated significantly. It is called NUA ( Net Unrealized Appreciation Stock).( Get J K Lasser’s “YOUR INCOME TAX” for an excellent 2-page narrative explaining how it works, and search this website for postings about NUA.)
3. Ask your company if they have provisions in their 401-K plan for you to take distributions after you retire. There is another special provision that allows you to take distributions from 401-K and employer-sponsored retirement plans if you are or will become 55 in the year of “SEPARATION FROM SERVICE”. DO NOT ROLL OVER YOUR 401-K TO YOUR IRA because there is a 10% penalty for early distributions from IRAs before 59 1/2, unless you set up a SEPP 72-T plan, as discussed thruout this website.
4. Meet with a tax and/or financial/retirement planner, not a broker. Find one who knows all of the topics mentioned in this response.
5. Include in your planning the deferring of SS benefits until 70, and thereby get a 65% increase in your benefits over those at 62, or 24% increase over those at 67.
6. Consider converting some of your IRA to a ROTH IRA systematically while keeping your taxable income in the 15% tax bracket.2011-01-17 13:17, By: dlzallestaxes, IP: [126.96.36.199]
L3: 72tIf the withdrawals from 401k that DLZ suggested are not available, go to the calculator section on this website, and use the calculator that lets you put in your age, and annual withdrawal gross amount you want, and then tells you the amount needed in an IRA account to support that annual withdrawal. Age is what you will attain by 12/31 of the year of the first withdrawal. Use AMORTIZATION method for highest withdrawal, and plan on no recalcuation for future years to keep it simple. Keep in mind that the applicable interest rate to use will change if your first withdrawal does not happen within the time restraints of that current max interest rate that is in the calculator which is OK right now. Don’t separate the IRA until you have the correct figure, but use this for initial planning. Once sure of first month of withdrawal, do the calc again, and move the needed amount (use “trustee to trustee transfer”) to new IRA that is for the 72t plan. Use the worksheet from this site to prove the 72t plan amount to be withdrawn each year, and keep a printout of the calcs, and the opening balance that you used from the IRA statement for documentation. Have the custodian of the IRA recheck your figures after you submit them. The annual amount can be divided into monthly or qtrly or other method of payments, but needs to be the same each year, except first year, where you can take prorated amount, so an APRIL start would allow 9/12ths or full annual amount in year one. This is a start, but reading older posts on this site will be a good way to learn more of the details involved. KEN2011-01-17 20:17, By: Ken, IP: [188.8.131.52]
While most of the information on this website relates to taking early distributions from IRA’s, in response to the question: “what a person should do to retire” I offer the following which has worked well for me since retiring 3 years ago at age 51
Prepare a detailed cashflow analysis of your income versus expenditures. Excel or some other spreadsheet program is all you should need.Make ayearly forecast, and draw down your savings in years when your expenses exceed you income, and add to your savings when your income exceed your expenses. Include factors like inflation and return on investments. Make the spreadsheet flexible so that you can easily change these factors and see the impact. Use conservative assumptions and estimates. Look at different scenarios, such as the decision to take a SEPP, as well as various lifestyle decisions, such as downsizing. Run a lot of scenarios until you are comfortable with the results. Develop a level of confidence that you won’t outlive your savings. Update the analysis periodically, even after you decide to retire. I reset my analysis every month.2011-02-01 22:50, By: Alan, IP: [184.108.40.206]
L3: 72tAnd do not put all of your investments in the same type of account ( i.e. have IRA, ROTH IRA, 401-K, and possibly SEPP, or multiple SEPPs) if you have enough to divesify in this way.
Also, diversify with equities in non-retirement accounts and fixed interest inside retirement accounts.2011-02-02 01:06, By: dlzallestaxes, IP: [220.127.116.11]
L2: 72tWithout knowing your lifestyle – it is difficult to recommend exactly what you should do to retire. You should obviously seek help from qualified financial advisors. I retired in Dec 2001 – and with help and tips from this website and a couple of others – have been very comfortable – starting with considerably less cashthan you have (I started with $1.4M). I can give a couple of recommendations that I felt helped me in the long run – and should help make you “feel” wealthy – because you really are. A couple of items that worked well for me:First the 401k. The recommendations from the others on your post appear to be the smart and right things to do. If you can drawon your 401k without additional taxes or penalties – this is a good place to start your yearly income. If you need more cashflow – (likely) – establish multiple IRAs with the IRA money. You can start a 72t on one with theamount of extra $$ you think youneed for your annual income and lifestyle. If you subsequently determine that you need more money -thenyou can startanother 72t on a different IRA, andanother, etc. This provides you with the ability to increase your initial cashflow if needed – and not be subject to penalties, or busted 72t’s, or any additional taxes.I would keep the Waterhouse accounts as “attitude money” or “emergency funds” for lack of better words. It would be a shame to retire withover $2 million – but not have immediate access to some of your own cash if you feel you need some extra. That isone item I regret -not having a liquid account with a good amount of cash – that was outside the IRA/401k tax and penalty rules. I am still waiting to reach 59 1/2 to buy a new truck (I don’t want loans, credit card debt, etc. – cash only).I would also build in annual recalcs ofany 72t’s right from the start -just in case inflation flares up again (second item I regret). If you end up withdrawing more than you need – you can pump it into the Waterhouse accounts.These might not be exactly perfect from a tax and accounting perspective – butcould helpyour mental attitude and help give you options for getting at your money if you want or need to. It makes you feel richer – as you should feel after accumulating a substantial amount of assets.2011-02-15 19:27, By: david, IP: [18.104.22.168]