72t distributions

You are here:
< Back

L1: 72t distributionsI apologize to all if this is too basic a question. I left my job at 54, last year, and want to start his year withdrawing from my 401k. My former employer will not allow any distributions so I plan on moving the 401k to an IRA. I would then like to start withdrawals. It looks like, with the calculator, I can figure out what I should take out to meet the 72t rule. My question is, how do I go about it. Do I just pull money out of the IRA, and then just put on my tax return I took out money based on the 72t rule? Do I need/must notify the IRA institution so they will code my 1099 correctly (from my readings here that looks to be an issue). Is there some form or something I need to give to the IRA holder to verify my withdrawals. Do I need a tax professional? I don’t see why.Thanks for any and all help. And as many have said before, this site is great education.Mike2010-02-10 21:58, By: Mike_withlackofknowledge, IP: []
L2: 72t distributionsMike,I’d like to suggest a starting point, in addition toreading a lot more posts and FAQs on this site.Pick a few potential IRA custodians (Schwab, Fidelity, Vanguard, etc., etc.) to whom you might have this money transferred, and ask them how they wouldhandle setting up a 72t (SEPP) plan for youafter youtransfer funds from your 401k to an IRA with this custodian.Have them supply the forms that you would have to fill out– in advance so you can see what is needed with each one. Many can be emailed to you as PDF files, or retrieved online if they talk you through it. They can explain what they would do, what you will ahve to do, andwhether or not you have to fill out their forms to request a 72t setup, or if they help you with that. I would also figure out how much you need to live on per year (before taxes) and use the reverse calculator on this site tofind out (at current INT rates)the $ amount you need to have move into the IRA(use trustee to trustee transfer only) for the 72t plan, so any leftover money can be put in a separate second IRA that could be tapped for emergency withdrawals, where you would only pay the 10% penalty on that withdrawal and not disturb your 72t IRA plan. Remember that the allowable MAX interest rate (“reasonable interest rate”) you can use in the calculation of your SEPP plan changes based on the month you make your first withdrawal, so by the time you move the money, and recalculate, it may yield a slight change in the payout that is allowed. Ken2010-02-10 22:37, By: Ken, IP: []

L3: 72t distributionsKen,Thanks for you response. Actually, I’ve been living over a year without a salary so I have a pretty good idea about monthly monetary needs (I truly appreciate your thinking about this for me). We also have more money in taxable accounts than in my 401k to IRA account. So I think we have all that covered pretty well (but time will tell :-)So what I need is the exact nuts and bolts. The main reason for my question is I have talked to Vanguard and Fidelity but I really want to put my savings into different vehicles than they provide so it doesn’t make sense for me to go with them. But I’m not sure if I can do the 72t on my own without worry about the IRS coming after me some day.Thanks,Mike2010-02-10 22:52, By: Mike_withlackofknowledge, IP: []

L4: 72t distributionsI’m doing 72(t) with Fidelity and I can tell you for a fact they don’t “set up” 72(t) plans – they take Zero responsibility for the thing. I’ve had several conversations with them prior to starting my plan. You’ll have to file a 5329 forum and override the 1099 coded “1” (Early distribution, no known exceptionon) your taxes. The most you can do is set up an automatic withdrawal on their system with the amount you calculated, but it will still be coded “1”. It’s no big deal though, just use this site’s info to make the calculation, and document it, and take out the correct amount each year yourself.2010-02-11 14:46, By: mikex, IP: []

L5: 72t distributionsThanks, It will be interesting if Fidelity will help me. They actually told me they would do everything. When I talked to Vanguard, they said they would but seemed a little hesitant. It sounds like I can do it myself, I appreciate the help!2010-02-11 15:40, By: mike_withlittleknowledge, IP: []

L6: 72t distributionsVanguard and Fidelity brokerage account each provide a wide access to investments, so I am somewhat concerned when you indicated you want to invest in different vehicle than what they provide. Non traditional IRA investments can present some serious challenges in the area of prohibited transactions, appraisal requirements, lack of liquidity. etc. It is not advisable to up the ante even more by exposing a 72t plan for these investments because you are then matching a restrictive plan with investments with their own unique limitations. This has a high risk of working out badly. It is best to use conventional investments in your 72t plan and use other retirement accounts if you want more complex investments.2010-02-11 21:57, By: Alan S., IP: []

L7: 72t distributionsThanks Alan, but what I meant was the mutual/bond funds I wanted to invvestment in are from other companies. Thanks again.2010-02-12 00:11, By: mike_withlittleknowledge, IP: []

L8: 72t distributionsMerely get a brokerage account where you desire and you can add almost any investment. My brokerage account is through Vanguard, but none of the EFTs that I use asinvestmentsare sponsored by Vanguard.2010-02-12 00:35, By: Gfw, IP: []

L9: 72t distributionsMost people know Vanguard only as a mutual fund family. Vanguard also has a division that is VANGUARD BROKERAGE SERVICES thru which you can buy any stock, bond, CD, mutual fund ( Vanguard’s or others), etc.2010-02-12 04:36, By: dlzallestaxes, IP: []