72t for Tax Planning

L1: 72t for Tax Planning
I am fifty seven and one half; when my company relocated late last year I decided to retire rather than move with them. Currently I have about $1 million in IRA’s, 75% with Vanguard and 25% with Fidelity. Additionally I have enough ($120,000) in after-tax accounts to see me through the two years until I am fifty nine and one half. However, I have been considering that it may be wise tax planning to begin taking money out of my IRA through SEPP starting this year. I would appreciate your comments on the following plan.
I will have negligible taxable income for CY 2003 and 2004. Using your 72t calculator for a 58 year old (my age at the end of this year) it appears I can withdraw $27,777 each year from my $750,000 Vanguard IRA using the minimum withdrawal method. I would use one annual withdraw of this amount each July 1st for the next five years. Assuming I don’t have to pay any penalties, my income tax on this amount would be relatively low under the new tax rates. It seems that my total five year tax bill will be a lot lower than if I use my after tax money to live on until I am fifty nine and a half and then withdraw $50-60,000 each year after that for three years until I can collect Social Security. Does this make any sense? Are there any negatives to this plan? I am assuming that the $250,000 in my Fidelity account would still be available for use without undoing the plan when I turn fifty nine and a half should the need arise, is this correct? Thanks, Bob.2003-06-09 05:13, By: Bob, IP: [127.0.0.1]

L2: 72t for Tax PlanningSounds like a sound plan. Just make sure that you make it throught the 5 years prior to making any changes in the IRA withdrawal. See the “Last Payment Date” calculator for for the date when payments can be modified. Also note, the annual withdrawal under the Minimum Distribution method increases annually.2003-06-09 05:29, By: Gfw, IP: [127.0.0.1]

L2: 72t for Tax PlanningHello Bob:
You have correctly diagnosed a common “tax planning” error. One should look forward in time, at least a couple of years, and determine what their likely average and marginal tax brackets will be. Then, the strategy becomes apparent — never leave a marginal tax bracket (in a early year) which is less than your average tax bracket go unused. It is counter-intuitive at first, but you actually save taxes by “pulling taxable income forward” to avoid delaying that same income only to pay more taxes on the same dollars a few years later.
Regards
TheBadger
wjstecker@wispertel.net

2003-06-09 07:04, By: TheBadger, IP: [127.0.0.1]