72T to offset a mortgage
L1: 72T to offset a mortgageI am 39 and will be getting 373,000.00 by 2011 through ESOP from my previous employer. Currently, I have 225,000.00 in IRA accounts. So far I have received 120,000.00 of the 373,000.00. I am buying a house. Would the monthly distributions from the 72T be applied one time only to 598,000.00 (373,000.00 as of 2011 225,000.00 as of today)? In other words, would the payments fluctuate from year to year? 2008-04-17 19:13, By: cs, IP: [188.8.131.52]
L2: 72T to offset a mortgageCS,
To begin with, I think you are way too young to start a SEPP plan, since it will be likely reducing your retirement nest eggfor the next 20 years, and when you need it most, a lot of it will already be spent. Try using the “reverse” calculator on this site, and plugging in the amount you need each year (gross) and see what initial IRA balance is needed at your age, and then plug that figure into the regular calculator and see what it predicts your ending balance might be after 20 years of withdrawals.
With that aside, you can”t count your chickens before they hatch. Money owed to you from an ESOP that is not yet in yourIRA money cannot be part of the SEPP plan starting balance.In addition, if more money were given to you after you start the SEPP plan, it cannot go into the IRA that was designated for your 72t or SEPP plan, or it will “bust” the plan and trigger the penalties. It cannot ever bea part of the initial 72t, and another one would have to be started on that new IRA if you really need that money.You can only start a 72t or SEPP plan with an IRA balance (or the sum of multiple IRA balances if you want to complicate things) that already exists, and can be shown on recent custodial statement(s) to back up your plan. Any error over the next 20 years, (adding to the IRA or taking too little or too much out in any year) can cause youa world of hurt, since you will then owe 10% penalty on all withdrawals to date, along with interest that IRS can add. I”d do some more reading on this site to get more familiar with the 800 lb gorilla you are about to unleash at a young age. KEN2008-04-18 05:29, By: Ken, IP: [184.108.40.206]
L2: 72T to offset a mortgageKen has done a good job pointing out the problems you will potentially create by starting a 72(t) plan at your age. But I have a hunch there is more going on here than you have explained. My question is why do you want to use a SEPP Plan to fund the purchase of a house? Has a mortgage broker or someone else”pitched” the idea to you?
Unfortunately there are unscrupulous insurance agents,securities brokers and advisors, andanyone else with a need to get their hands on your money who have discovered 72(t). I am seeing too many”glasey-eyed” people telling me what a great deal they have just been presented whereby they can use 72(t) to fund the purchase of insurance and investments. Not only are the regulators in both industries taking a very hard look at this approach (the hammer is getting ready to fall and it will break some heads), but legitimate agents,brokers and advisors are having one heck of a time trying to keep these people from making a truly disasterous mistake. Sometimes we are successful but other times we”re not.
Ken is right. Why are you interested in locking yourself into a 20-year, mandatory distribution program when at your age you should be buying your house with current income? Since you didn”t mention that you were permanently disabled and can”t work (if so then you don”t need 72(t) for penalty-free withdrawals), I will assume you are in good health and have a good job so you can make house payments. You will need your retirement income more when you retire than you need to buy a house today.
Just my thoughts.
Jim2008-04-18 07:18, By: Jim, IP: [220.127.116.11]
L2: 72T to offset a mortgageAND, as we”ve seen with the current real estate market, I would not expect that the house will appreciate at any rate close to investments in the stock market, or even in fixed investments, over the next 20 years. So, I wouldn”t advise you to think that this real estate investment in a home is better than your IRA Retirement Account.
AND, I know that all of us would never recommend that someone”s retirement “account” be entirely invested in 1 asset — your home !!!2008-04-18 13:30, By: dlzallestaxes, IP: [18.104.22.168]
L2: 72T to offset a mortgageThere might be some NUA potential in the ESOP shares if the cost basis is low enough. That could avoid a 72t for awhile and the cap gains rates stay low through 2010. However, I agree with the others about the overall plan and use of a 72t over a period anywhere near as long as 20 years.
2008-04-18 18:04, By: Alan S., IP: [22.214.171.124]