72t confused

L1: 72t confusedMy husband is 54 and about to receive his retirement. We’re rolling it all into an IRA with a broker. We would like to receive a partial lump sum distribution this year. Does this mean we would have to wait until the next year to do the 72t? And this is based on calendar years,correct? So we could begin in January of next year to receive monthly payments thru the 72t? Also, is anyone clear on the home buying rule for exceptions? Any help would be greatly appreciated. Thanks!2004-07-07 13:34, By: lauren, IP: [170.145.0.100]
L2: 72t confusedHello Lauren. There are several questions here and I””ll try to address them.
Will your husband be age 55 by 12-31-2004?The specific (paraphrased) wording is that if you retire during or after the year you reach age 55, then distributions from a qualified plan at work are not subject to the 10% early distribution penalty. If this is the case then you can take partial or regular distributions from the plan. However, if you do an IRA Rollover from the qualified plan to an IRA, then the IRA rules take over and you are subject to the 10% early distribution penalty until age 59 1/2.
72(t) requires 5 years of distributions andreaching age 59 1/2. Once you start it you have to keep going until both factors are satisfied, unless you intentionally “bust” the plan and pay the penalties and interest. The age element is pretty straight forward, but the 5 years gets a little muddy. You can start anytime during the year but must continue for the full 5 year time period, or 1825 days plus a few days for good measure. You don”t want to get into a “day-counting” argument with an IRS agent so plan on going on for a short while. You””ll have at least one if not two leap years to contend with.
You should check out Pub 590 about the Home Buying exceptions and also consult a qualified CPA. Above all, try to keep this element separate from 72(t). I don””t think anyone is comfortablepredicting how trying to use one of the exceptions like home buying or education will work when taking fundsfrom an establishedSEPP. The amount you can take for home buying is relatively small, and the cost for getting a PLR on this becomes prohibitive. So if you are thinking about doing 72(t) and home buying, use separate IRAs for each.
Good luck.
Jim2004-07-07 14:08, By: Jim, IP: [68.225.115.136]

L2: 72t confusedOkay….so no he retired over a year ago and is just now getting his retirement. He won’t be 55 until May of next year. He wants to take out $80k now and roll the rest over into an IRA. He will be peanalized on the $80k, but when can he start getting monthly distributions (72t)?? And who are the experts on 72t?? I can’t seem to find any. Help anyone??2004-07-14 14:51, By: Lauren, IP: [170.145.0.100]

L2: 72t confusedAlso…what is SEPP?? and what is PLR?2004-07-14 15:02, By: Lauren, IP: [170.145.0.100]

L2: 72t confusedLauren:
I just got your latest two posts but can’t respond at this time. I will respond first thing in the morning. The 72(t) experts are right here … not that I claim that honor but you will be receiving some good, useful info, so stay tuned to this site.
Jim2004-07-14 16:34, By: Jim, IP: [68.225.115.136]

L2: 72t confusedSEPP Substantially Equal Periodic Payment a method used to avoid the 10% penalty tax on distributions prior to age 59.5PLR Private Letter Ruling. Issued by the IRS (Internal Revenue Service) to a given taxpayer for a given set of circumstances,
Yes, he would be penalized on the $80,000 – $8,000 plus ordinary income tax on the $80,000. You/he gets what’s left after penalty and taxes very expensive source of funds – if there is any other source of funds like a 2nd mortgage, etc. you might be better off.
Monthly distributions can begin immediately after setting up the SEPP.
Who are the experts? That is a very hard question to answer. We try to answer basic questions on this forum, but if you need detailed information regarding you exact situation, contact your accountant, attorney or financial advisor. Another alternative_ if you want to learn yourself and then make some decisions, read the information ion this site. A very good reference (about the best other than this site) is Bill Stecker’s book A Practical Guide To Substantially Equal Periodic Payments And Internal Revenue Code 72(t)۝
Hope this helps 2004-07-14 16:53, By: Gfw, IP: [172.16.1.73]

L2: 72t confusedHello Lauren:
I read the thread & I think I have the jist of the matter. For your purposes I would think of a 401(a)/401(k)/403(b) retirement account and an IRA as being the same. Therefore I would not jump to the conclusion that an $80k distribution this year would ALL be penalized; there are mechanisms and strategies to be employed that either minimize or remove that penalty.
Next, a “SEPP” stands for “substantially equal periodic payment” plan; e.g. a plan of payments that avoid the 10% penalty.
A “PLR” stands for “private letter ruling” from the IRS. However, nothing I have read so far indicates that you would need one.
TheBadger
wjstecker@wispertel.net
2004-07-14 19:25, By: TheBadger, IP: [66.250.23.21]

L2: 72t confusedWow! Bill (TheBadger) and Gary (GFW) seem to have taken care of my having to respond. Thanks guys. ButI will encourage you to do two things: First, follow Gary’s suggestion to buy Bill’s book. It’s cheap (that’s not an invitation to raise the price) and very informative. Second, with the things you are trying to do and the information Bill gave about there being some methods whereby you may not have penalties on the $80k distribution, may I suggest that you get good advise from a knowledgeable CPA. This will not be a ‘do-it-yourself’ project.
Good luck.
Jim2004-07-15 09:42, By: Jim, IP: [68.225.115.136]

L2: 72t confusedJust a minor point – I have a brother-in-law named Gary – theG in Gfw stands for Gordon.
Gfw… http://72t.net/AboutGfw.aspx2004-07-15 09:47, By: Gfw, IP: [172.16.1.73]

L2: 72t confusedOOOPPSS!
Sorry ’bout that, Gordon.
Jim2004-07-15 09:50, By: Jim, IP: [68.225.115.136]

L2: 72t confusedWhy did your husband retire at 53 rather than wait until 55?2004-07-15 18:01, By: Redwoods, IP: [67.80.22.51]

L2: 72t confusedOkay I think I’m finally starting to get it. The reason we were going to take out so much($80K) is because we needed the money for a down payment on a house and we thought we couldn’t get any 72t distributions until next year. Now it sounds like he can take out whatever amount he wants to, and then set up the SEPP and start getting those payments right away. Is that correct? His retirement plan is sending a check directly to a broker this week for the full amount of his pension. Do we just let the broker know that we want to set it up as a SEPP account? 2004-07-16 13:17, By: Lauren, IP: [170.145.0.100]

L2: 72t confusedHello Lauren:
I have one word for you & your husband: STOP. Allow me to repeat: STOP.
We don’t have anywhere near enough detailed information about the facts of the situation to provide sound answers much less tax advice & that’s what you need most at the moment. To leap forward at this point without full knowledge of all of your options is to invite disaster (at least in the form of some penalties that might otherwise be avoided).
I strongly advise that you seek out competent advise somewhere first.
TheBadger
wjstecker@wispertel.net
2004-07-16 13:25, By: TheBadger, IP: [66.250.23.21]

L2: 72t confusedI am terribly upset with Lauren’s situation.Just imagine the possible consequences that may lie ahead for her and her husband. In my view the law should require that theemployer conduct an impartial seminar of the parameters associated with a lump-sum distribution. Why is the system so fragmented? So cavelier? So uncaring? LAUREN’S SITUATION IS A NATIONAL DISGRACE!
Peace and Hope,
Joel L. Frank2004-07-17 09:38, By: Redwoods, IP: [67.80.22.51]

L2: 72t confusedHello Joel:
I fundamentally agree with you; however, the law actually swings the other way. Employers/Plan Sponsors are prohibited by federal statute and DOL regulations from providing investment advice and tax advice; instead, all they can say is to go get it but they, themselves can not provide it even though they are frequently qualified to do so.
Ina way, that’s why Gordon has developed this website & why I wrote the book; simply because there are no other sources readily available to the average guy.
Thebadger
wjstecker@wispertel.net
2004-07-17 09:56, By: TheBadger, IP: [66.250.23.21]

L2: 72t confusedThe key word is “advice” which the plan sponsor is prohibited from dispensing. I am referring to an “educational” “guidance” “informational” type seminar which I believe is permitted. Please elaborate for all of us. And thank you both for all you do to help people and professionals.
Peace and Hope,
Joel L. Frank2004-07-17 11:08, By: Redwoods, IP: [67.80.22.51]

L2: 72t confusedThe dividing line between: “guidance” or “information” on the left & “advice” on the right is very, very grey and often fact & circumstance driven. As a result, every employer / plan sponsor is afraid of the issue. As an example, Bob, employee benefits manager for XYZ buys my book and proceeds to add 2 – 4 slides in his 401(k) presentaion to new employees, did he:
1. Provide information — YES.
2. Provide guidance — YES.
3. Provide advice — MAYBE.
4. Was he licensed to do (3) — NO.
5. Is Bob’s employer liable for any acts by an employee based on what Bob said? — PROBABLY.
6. Is XYZ’s errors covered by insurance? — NO.
Instead, XYZ hires me to come in 4 times per year to run a seminar on 401(k) plan distribution strategies (including 72(t) strategies). Did I:
1. Provide information — YES.
2. Provide guidance — YES.
3. Provide advice — YES.
4. Was I licensed to do so —- YES.
5. Am I liable for any acts committed by an employee based upon what I said?—MAYBE, if it can be established that a professional / client relationship existed.
6. Am I covered by insurance — YOU BETCHA.
There are 2 key issues here embodied in #5 in each example. In the 1st case, the employer is presumed to have done something they should not have; therefore the bar for information vs. advice is tilted against the employer (almost a presumed guilty until proven innocent). Conversely, in the 2nd example the bar is tilted in the reverse direction where the professional / client relationship standard must be proven by the injured employee.
As a result, the employer is essentially in a no win situation and trustees/sponsors have rightfully kept there collective mouths shut. I am not saying itright, I am just saying that that is how the law is being interpreted.
Lastly, thegood employerthen faces the additional costs ofhiring the professionals to come in and speak; do they pay those fees out-of-pocket or do they pass those costs on to the employees as part of plan administration.
TheBadger
wjstecker@wispertel.net

2004-07-17 12:02, By: TheBadger, IP: [66.250.23.21]