# 72t distribution amount

L1: 72t distribution amountI am 55 years old. I lost my job due to a downsizing at 53 years old. I am about to exhaust my unemployment benefits and am considering a 72t. My financial advisor tells me that the max I can take is $12 to $13 per year for 5 years without incurring the penalty. I want to take more like $24000 per year. Does anyone know why there is a cap on the amount? For all intents and purposes I am now considering myself retired. I need help with this!!!2010-03-25 02:19, By: Cyd, IP: [66.215.45.90]

L2: 72t distribution amountCyd:

The amount distributed by a 72t plan depends on a number of factors, including the amount of money in the IRA or IRAs upon which the plan is based, the calculation method used, and possibly an age factor or an official interest rate.

There are 3 IRS approved calculation methods and you are free to use any of them. The RMD method results in the smallest distribution and is strictly based upon an age factor and the amount of money in your retirement plan. The amount distributed is recalculated each year with the age factor declining by 1 each year. The amortization and annuitization methods generally distribute about 40% or so more money than the RMD method and are not generally recalculated, although it is permitted if the 72t plan is set up to do it each year. Not recalculating results in a fixed distribution for the entire time that the 72t plan runs and you must take this exact amount.

Have you plugged any numbers into the calculators on this web site to see what your actual distribution by any of the official 72t distribution methods will be? That would be a good 1st step.

Also, I assume that the distribution amount quoted by your financial advisor was $12-13,000 dollars per year and not $12-13 per year. Running the numbers through a SEPP or 72t plan calculator would show you what is possible for someone in your situation.

If the calculators confirm what your advisor has said, then that is what is possible for you via a 72t plan. If the amount is not sufficient to live on, then you will need to find supplemental income from another source, such as part-time work of some kind. If this can add enough to your income to support a semi-retirement, then a 72t plan might work for you.

Keep in mind that the 72t rules are rigid and you must follow them for the longer of 5 years or until you reach age 59.5. In your case, it would be for 5 years. During those years, you must take the exact calculated distribution amount or you risk busting the plan and owing taxes and perhaps interest and penalties on all the distributions made under that plan until age 59.5. This is a serious risk that should not be taken lightly. A 72t plan can work quite well but it must be set up and run very carefully.

2010-03-25 05:19, By: Ed_B, IP: [71.236.183.224]

L3: 72t distribution amountEd_B… good explanation. There is 1 point that needs clarrification. You state that for the minimum distribution method…”The amount distributed is recalculated each year with the age factor declining by 1 each year.” It is close to one, but the factor comes from atable and also changes annually.2010-03-25 09:09, By: Gfw, IP: [24.148.10.164]

L4: 72t distribution amountThanks for the clarification, GFW. It is the great strength of this web site that our understanding of this subject is continuously revised and upgraded. I appreciate your comment, as I had always thought that the age factor was reduced by 1 year each year. That would make sense from the mathematical point of view, since an expected life time of, say, 25 years should be 24 years in 1 more year… unless it is adjusted slightly to compensate for the addition of another year of living. Where can I find this table that shows the factors to be used? Thanks,

Ed_B

2010-03-25 16:27, By: Ed_B, IP: [71.236.183.224]

L5: 72t distribution amountLook to Appendix C,Publication 590, Page 90. The reduce by one factor is right for a beneficiary IRA, but a SEPP plan uses the same table as Required Minimum distributions. You can find a link to Pub 590 under Resources/Links in the left menu.2010-03-25 16:36, By: Gfw, IP: [24.148.10.164]

L6: 72t distribution amountThanks for the reference. I will check it out today. 2010-03-25 16:41, By: Ed_B, IP: [71.236.183.224]

L7: 72t distribution amountFYI the age divisor deceases by about .9 per year.2010-03-25 17:11, By: dlzallestaxes, IP: [173.49.30.37]

L8: 72t distribution amountCyd,If the numbers don’t work for you with a SEPP plan based on the amount in your IRA, and age, etc, you have the option to take out the $24K per year, and in addition to regular taxes, you will pay a 10% penalty each year on those withdrawals, or $2,400 per year, while you remain unemployed and need to draw from the IRA. Perhaps you will only need to do this for 1 year. If you start a SEPP plan taking $13K and it is not enough, you will probably “Bust” it at some point anyway. This option limits your penalty for the years you need the extra money, and does not force you to take out IRA money for five years.One note on Ed-B’s first post, I think that all three formulas for the allowable withdrawal options for a 72t plan or SEPP do involve an age factor.KEN2010-03-25 20:08, By: Ken, IP: [71.192.120.143]

L9: 72t distribution amountCyd,

Like Ed_B stated earlier, you might want to start with the calculators first. And go through all three calculations. You could a big difference in the amounts that you can take out.

Chuck2010-03-25 20:38, By: Chuck, IP: [173.155.9.216]