I am looking to retire at 55 in May. My 72t distribution was figured at $24,900 annually. Are federal and statetaxes withheld from this amount? I live in Indiana.
2012-01-30 18:46, By: Summer, IP: [188.8.131.52]
Since you are retiring in the year you reach 55 or later, you may not need a 72t plan. If the plan of your current employer will provide you with reasonably flexible withdrawal options you can take distributions directly from the plan penalty free under
the special exception. Then when you reach 59.5 you could roll over the plan to an IRA.
However, if your plan requires you to take a lump sum or does not offer any flexibility for your distributions, then you may need a 72t plan after doing a direct rollover to an IRA.
Now to your question. It is your choice whether to have federal and state withholding taken out of your 72t distribution. For 72t purposes only the gross distribution matters. While some people use withhholding from the distribution, generally paying by
quarterly estimates is a little less risky because you are in control of the money and there is one less variable involved with your distribution that could cause confusion between you and the custodian. Also, if you had a temporary emergency need for funds,
having the otherwise withheld funds at your disposal gives you more flexibility than having these funds on deposit with the US Treasury.
Check into the distribution options your current employer plan offers, since you may well be able to avoid locking yourself in with a 72t plan for 5 years.
2012-01-30 20:03, By: Alan S., IP: [184.108.40.206]
Can I still work full or part time at a different company after I begin my 72t distributions?
2012-01-31 14:05, By: Indiana Girl, IP: [220.127.116.11]
Yes, you can. Working has no affect on your 72t plan. Most 72t plans are started due to loss of job or early retirement, but a 72t can also be used to supplement your income.
What you want to avoid is the unnecessary early drawdown of your retirement plan assets, and the higher taxes resulting from adding the distributions to the work income. If you qualify for a retirement plan (eg 401k) at the new
company, you can contribute to that and effectively offset the amount you are withdrawing from the 72t.
2012-01-31 17:34, By: Alan S., IP: [18.104.22.168]