72t

L1: 72tMy first question is can you still be employed and participate in a SEPP ( 72t ) program with a company who sponsors my 401k plan thru fidelity.

I am currently 50. My wife is 51. We both have pension plans. Mine is 100% at the age of 57 with a reduction of 3% for every year earlier. At 57 mine will be ~ $ 76k/year.My wiifes pension will be ~$35k/year.We have $400k in our 401k plan now. I would like to retire early but we still owe ~$ 170k on our house.I just learned of this 72t program and am curious if I could use it to pay off my house which would allow me to retire with less concern.
I will of course go through a financial advisor which we have talked about doing but thought retirement was a few years down the road. Finding out about this 72T though has quipped my interest and am cautiously looking into it. Thank you2007-07-27 07:27, By: kellyp, IP: [198.29.191.149]

L2: 72tProbably not with your present employer, but probably yes with a different employer. Check with your current employer”s plan administrator for the provisions of the present plan. Ideally, if you can target for the beginning of the year in which you will become 55 (probably 3 years from now), you could possibly have the best of all worlds. You could retire without needing to set up a SEPP 72-T at that time, and still not be subject to any 10% early distribution penalty before 59 1/2. By the way, while you are talking to your company, ask if you have any EMPLOYER COMPANY STOCK in your account. If so, then research the NUA (“NET UNREALIZED APPRECIATION”) provisions of the tax code. You may be able to save thousands, or even tens of thousands in taxes by NOT rolling your pension/401-k over to an IRA. (See J.K. Laser”s “Your Income Tax”, under $ 20 at super bookstores and office superstores.)2007-07-27 11:20, By: dlzallestaxes, IP: [141.152.249.238]

L2: 72tKellyp,
Dlz is correct. Most employers do not allow in service distributions, since the 401k is designed for your retirement, but retiring in the year you turn 55, or later usually opens up the 401k to withdrawals and they do not trigger the 10% tax penalty. It is important to read the plan document or perhaps just the Summary Plan Description (SPD) for your plan to see what options are available for payments before and after retirement.
If you also had aIRA, you could start a 72t on that account to help pay down the house while still working, but it will require you to continue those withdrawal each year until you have passed 59 1/2 and have done at least 5 years of withdrawals. At age 51, it will require 8.5 years of withdrawals. These withdrawals add to your taxable income and possibly put you in a higher bracket if still working, so a good chunk of your withdrawal each year would go to paying taxes and covering the increased taxable % you are paying on regular earned income.
I took your $400k 401k balance and put it into the calculator on this site, and using the amortization option, which pays the highest, ityielded appx $27k per year at current interest rate and age 51. After taxes, (if still also working) that might only be $18k-$20k to put towards the mortgage each year, so it would take a while to pay down a $170k mortgage at that rate, and it has the potential to erode the $400k balance to a smaller total when you have finished those payments. I think the pension figures you are mentioning in conjunction with access to a potentially larger 401k balance when you retire (and to SS at age 62 if desired) would easily handle the mortgage payment, and/or make extra principal payments, so there may be no need to worry about it now. KEN2007-07-30 03:47, By: Ken, IP: [75.67.65.254]