L1: 72tHello, I have recently retired(Nov/2008)using the 72T option. I am 56. I have around $400,000 in my IRA account. My financial advisorasked me how much I would need from the account for monthly expenses. I figured around $6500. Now I come to find out that there is a maximum that you can take out using a 72T calculator. I am not sure if he knows this. Am I in violation of a compliance rule and if so will I be penalized and if I am should he be responsible for the penalty and will I be able to break the 72T and start a new one? Thanks for your answer.2009-03-06 03:50, By: Perry, IP: [22.214.171.124]
Using your figures, a withdrawal of $78,000 per year against a base of $400,000 (especially in these declining markets that were wll known in Nov 2008) would exhaust your entire IRA (retirement savings?) account in about 3-5 years, so this is way beyond a reasonable retirement plan, aside from it not being valid for 72t. I did some quick figures, and at most, your (new) plan if started in March 2009 would yield less than $20,000 per year under 72T rules. If you stop the old one now, assuming 5 payments of $6,500 were received, you would owe a fed tax penalty of 10% or $3,250 in addition to regular Fed and State taxes on those withdrawals. I am not sure if a new plan that yields under $20K per year (or about $1,600 per month) would even come close to working for you. Was any paperwork filled out at the financial advisor’s officeto compute your 72T withdrawal, and who filled it out? (I have never heard of an advisor who asked how much do you need, unless there was a much larger portfolio, and they are splitting it inot two IRA’s so only the needed balance was in theIRA account to be used for the 72t plan.) Did you tell him about 72t option, or did he tell you? What did he say when you told him that this plan is not valid? This all has a bearing on whether or not you have any course of action with them, I would think. At this point, maybe they would be willing to pay the penalty for you if you end it, since you would have had to pay the taxes anyway. Just my thoughts. KEN2009-03-06 21:29, By: Ken, IP: [126.96.36.199]
L3: 72tHe is the one who brought it up and asked me what I needed for monthly expenses. I was figuring a little high and could always save the rest. I did not know that there were conditions or compliances on max amounts just that they had to be equal amounts for 5 years..Yes it was split up in two accounts. I have not told him that it is not valid yet. Maybe he was thinking of high returns on the second account. Also, if it is left as is, will I be penalized? and if so when? after my next tax return is filed in 2010?Thanks for you answers.2009-03-07 01:25, By: Perry, IP: [188.8.131.52]
L4: 72tHere is a starting point. Ask him to give you the written details for your 72t plan that he set up, because your tax preparer wants to go over them, and put them with your tax return, and see what he gives you. BTW-What distribution code (in Box 7) was entered on the 1099-R that you got from this IRA for the $13,000 from NOV and DEC 2008 payments, which have to be declared on your tax return for 2008? If it is not a code “2”, then you will need to file a form 5329 with your tax return if you are documenting it as part of a 72t payment plan, so this request should be very plausible. I’d be shocked if the 1099-R had the code 2, and it probably has a “1” for early distribution.
Then write back to the forum with any details he provides. It should include initial IRA $$ balance used and date of that balance, the reasonable interest rate used, your age in 2008, and the annual (and/or) monthly payment amount, along with method- Amortization or Annuitization.Since you mentioned that there are 2 IRA’s, if the sum of your 2 IRA’s is much larger than the $400K you mentioned , he may have used both totals to compute it, and it might be right, but it does not sound right at this point. You just need more info before you proceed to rectify this mess. For each month you continue to take payments if this plan turns out to be invalid,you will incur another $650 (10%) penalty on top of the taxes that are due. KEN2009-03-07 04:23, By: Ken, IP: [184.108.40.206]