A 72(t) Years After Retiring ?
L1: A 72(t) Years After Retiring ?Personal info: I’m 52 years old & work in the private sector (manufacturing)
When I first posted here 1.5 years ago, I was planning on quitting my job at the beginning of 2014, rolling my 401-k into an existing IRA, & starting the 72(t) SEPP for additional income. The hours/schedule I worked was 95% of the reason I was going to quit early.
Late in 2013 it was announced that starting in January 2014, our plant would be going back to a more ‘conventional’ schedule. (great for me)Even though we recently switched back to the schedule I loathe, the 5+ months I spent on the ‘conventional’ schedule re-energized me & I’ve decided to stick it out & retire in May of 2015.
I’m as certain as one can be, that I’ll have enough income to live comfortably without ‘tapping into’ my 401-k/IRA early.But no one knows what the future holds, so my question(s) are as follows.
Scenario: I retire next May, leave my Vanguard 401-k as is, & everything goes great.3 years later, (2018) a situation develops that creates a need for additional income. (a loved one in need, a medical condition, a change in living standards, (new home) a lawsuit, etc)
I would be 56 at that time. Could I still do what I originally planned to do starting in 2014 ?That is, roll my 401-k into an existing IRA & begin the 72(t) SEPP ?
Thank You2014-08-16 18:38, By: Steve, IP: [220.127.116.11]
L2: A 72(t) Years After Retiring ?I have seen many articles recently warning people about retiring too early. One of the main reasons is that the value of health care coverage and health care costs until Medicare starts at 65 are usually under-appreciated. Second, many people cannot find enough activities to keep them occupied, rather than just vegetating.
There is no problem waiting until you retire to transfer your 401-K into an IRA.
But there is a better scenario that I would recommend that you consider — Continue to work until Jan/Feb of the year that you will become 55. ( You did not indicate your actual birth date.) ( Accumulated PTO, vacation time, and sick time can make that extra year very palatable.) Then, see if your company’s 401-K plan permits partial withdrawals whenever you request them. If so, then you get the best of all worlds :
2. Invested retirememt plan
3. No need to set up a SEPP 72-T plan which will lock up your investment assets and the amount of your annual distributions for 5 years until 59 1/2.
4. Complete flexibility in coordinating retirement income, tax planning, social security deferral until 70, ROTH CONVERSIONS at 15%, non-retirement Qualified Dividends and Long-term Capital Gains taxed at -0- in 15% tax bracket.
If you roll the 401-K into an IRA, you lose all of the benefits available in items # 3 & # 4 above. That is a lot to sacrifice instead of working one more year than your recent plan.
Also, see if there is your company’s stock in your 401-K, often from the company’s contribution. If there is, then research the NUA ( “Net Unrealized Appreciation”) provisions of the tax code, which can save you a lot of taxes. I saved a client over $100,000 because I knew about it. ( It is clearly explained in J K Lasser, Your Income Tax, available at libraries or super bookstores.)
2014-08-16 19:17, By: dlzallestaxes, IP: [18.104.22.168]
L3: A 72(t) Years After Retiring ?ATTN: dlzallestaxes: Thanks for the reply!
“I have seen many articles recently warning people about retiring too early. One of the main reasons is that the value of health care coverage and health care costs until Medicare starts at 65 are usually under-appreciated”
I appreciate this warning, but I have think I’ll be ok. *I have zero debt*
After retirement next May, my monthly income (Pension + Dividends) would be around $5,000.00 per month.My 401-k is at $215,693.00 my IRA at Fidelity is $24,962.00 Combined total = $240,655.00
After rolling the 401 into the IRA, & assuming a modest 5.00% annual return for the 6 years until I’d turn 59.5 years old this wouldbe worth approximately $322,000.00
My Social Benefit would be $1,300.00 per month at age 62
Of course all this assumes the whole world doesn’t implode sometime in the future.
Bottom line: God willing, if I’m still around a little less than 10 years from now, & if the minimum SS age hasn’t been raised, I should have monthlyincome of approximately $6,300.00 (not counting any IRA distributions)
“many people cannot find enough activities to keep them occupied, rather than just vegetating”
This will not be a problem for me.
“There is no problem waiting until you retire to transfer your 401-K into an IRA”
I assume I can roll it into the ‘existing’ IRA at Fidelity mentioned above ?
“Continue to work until Jan/Feb of the year that you will become 55”
My birthday is in January. So I wouldn’t turn 55 until January 2017. 2.4 years away. This is not possible. I need to get out ASAP
“Also, see if there is your company’s stock in your 401-K, often from the company’s contribution”
There isn’t. We do however have a ESPP which I’ve been in since 1995.
Steve2014-08-16 21:07, By: Steve, IP: [22.214.171.124]
L4: A 72(t) Years After Retiring ?Steve- RE: doing rollover of 401k with existing IRA
I suggest you google the topic of commingling a 401K rolloverinto an existing IRA. There are creditor protections the 401k has that you can lose in that commingling scenario, but theycan be maintained if it is put intoa separate rollover IRA. State and Federal laws differ, so both need to be checked. I am not up to date on this, but thought you could research it before you make any move, or someone can give you more details.2014-08-17 03:54, By: Ken, IP: [126.96.36.199]
L5: A 72(t) Years After Retiring ?In relationship to Ken’s point, since you are still relatively young, and may want to, or may have to, go back to work, it is much easier to rollover your “ROLLOVER IRA” into a 401-K if a new employer’s plan will accept it, rather than trying to get them to accept a rollover from a plain traditional IRA.
Also, most articles that I have seen indicate that someone needs about $ 1.5 million to fund a 20-year retirement at 65. You will have to be extremely frugal and well disciplined to be able to fund your retirement for 30 years (to a life expectancy of 85) on the$300,000 that you think that you can do it with.2014-08-17 04:10, By: dlzallestaxes, IP: [188.8.131.52]
L6: A 72(t) Years After Retiring ?”I suggest you google the topic of commingling a 401K rolloverinto an existing IRA”
For instance I already learned: “If you do roll pre-tax 401(k) funds into a traditional IRA, you may not be able to convert those funds back into an employer-sponsored retirement plan. Contact your tax advisor for more information.
I wasn’t aware of this.
ATTN:dlzallestaxes”You will have to be extremely frugal and well disciplined to be able to fund your retirement for 30 years (to a life expectancy of 85) on the$300,000 that you think that you can do it with”
I must not have explained correctly. Hopefully the following will clarify.
My current assets: As of August 16th 2014
Fidelity Brokerage Account $414,209.00 *This is a taxable account*Vanguard 401-k $215,693.00Home Equity $100,000.00 ESPP $67,817.00 *Employee Stock Purchase Program*IRA $24,962.00 *At Fidelity*Checking $9,000.00 Debt 0
In my Fidelity brokerage account, I have a mix of dividend paying stocks, etf’s, REITS, & mutual funds
Stocks: Apple Computer, American Water Works, B&G Foods, Cinemark Holdings, Enventis Corp, Johnson & Johnson, Kinder Morgan Energy (MLP). Kraft Foods, Eli Lilly, MMM, Student Transportation, Verizon, & Wisconsin Energy
ETF’s: iShares International Select Dividend, Vanguard Dividend Appreciation, iShares US Preferred Stock
Mutual Funds: Fidelity Select Medical Equip & Systems, James Balanced Golden Rainbow Cl A
REIT’s: National Health Investments Inc, Realty Income Corporation
At this time, these dividend payers ‘kick off’ about $1,500.00 per month. (I’m reinvesting dividends at this time) *Yes I know most companies pay every 3 months, although 2 of these pay monthly. This is just an average*
I’m gradually selling off my ESPP ‘vested’ shares & adding to the above holdings that haven’t reached my (IHC) Individual Holding Cap (Once an individual investment reaches 20k, I don’t invest any ‘new’ money)
By this time next year, the above holdings should ‘kick off’ about $2,000.00 per month.
So, at this time next year, If I started taking these dividends in cash, my monthly income would be as follows.
Pension *May 2015* $3,000.00 Per Month
Dividends $2,000.00 ‘ ‘
Total $5,000.00 Per Month 60-k per year
Future Income: Social Security *Jan. 2024* Age 62 $1,300.00 Per Month Total $6,300.00 Per Month $75,600.00 per year
‘Possible’ Future Income ‘Not Listed'”You will have to be extremely frugal and well disciplined to be able to fund your retirement for 30 years (to a life expectancy of 85) on the$300,000 that you think that you can do it with”
The 322k I mentioned was assuming I roll my 401k into the existing IRA @ Fidelity. As of today, this would total 240k
Since I won’t have to implement a 72(t) for income, I figured the IRA, at an annual return of 5.00% would be worth around 322k by the time I turn 59.5. (2021)This would be another possible income stream. (If I Needed It At That Time)
As long as I’ve went this far, I might as well cover the one subject not mentioned yet.
Personal lifestyle/monthly living expenses.
FYI: Roof, Siding, Windows, Furnace & AC, all new in the last 7 years.
Healthcare: This of course is the biggie nowadays & I am not covered after retirement:I’ve done a small amount of research on the ‘affordable care act’ AKA obamacare. Don’t like what I’ve seen/heard __.so far
As it stands now, I’ve decided to purchase ‘COBRA’ insurance when I retire next May.This is the exact same as my present coverage & includes medical, dental, & vision.There’s substantial co-pays in some instances, but I like it.
This is available for 18 months after retirement @ a cost of approximately $581.00 per month. So I wouldn’t have to worry about dealing with obamacare until 2017.Hopefully some of the bugs will have been worked out by then.
It’s very easy to do a monthly budget when your only including the monthly/recurring items.
Taxes: (every 3 months)Property taxes & insurance: (every six months)Health Ins (monthly) City Water & Sewer (monthly)Telephone(s) (monthly)Cable/Internet (monthly)Electricity (monthly)Natural Gas (monthly) Car Payment (monthly) *Don’t have a car payment at this time, but added anyway. Will need a different car next year)Car Insurance (every six months)
These 10 items = 67$ Per Day, $2,010.00 Per Month
Since I use cash for the vast majority of my everyday expenses/purchases, it was very difficult for me to come up with that part of my budget.
So on February 17th of this year, I created a simple spread sheet & began keeping track of every penny I spent that wasn’t part of the 10 items listed above. I broke them into these 9 categories.
Alcohol: Automotive & Related:Big Ticket Items: Charitable Giving:Fast Food/Dining Out:
These items = 34$ Per Day, $1,020.00 Per Month
Total: $101.00 Per Day Or $3,030.00 Per Month
My Summary:With income of 5k per month when I retire, an IRA that would be around 322k at age 59.5, and S.S. of $1,300.00 per month at 62, I think I would be ok.
If I’m missing something, please point it out.
Sorry such a long reply.
2014-08-17 22:22, By: Steve, IP: [184.108.40.206]
L7: A 72(t) Years After Retiring ?You were very thorough, and seem to have your situation well in hand.
If your Fidelity taxable account generates $ 1,500/mo. =$ 18,000 how did you not have taxable income as you stated initially as your reason for not filing a tax return for 2012 and 2013? Let alone the 1099-R SEPP distribution ?
If you do keep yourself in the 15% tax bracket, then your Qualified Dividends and Capital gains are taxed at -0-. You should plan your transactions accordingly, and also consider a ROTH CONVERSION of your $ 25,000 Fidelity IRA in Dec 2014 and Jan 2015 if you will be in the 15% tax bracket.2014-08-17 23:10, By: dlzalleataxes, IP: [220.127.116.11]
L8: A 72(t) Years After Retiring ?ATTN: dlzalleataxes
“If your Fidelity taxable account generates $ 1,500/mo. =$ 18,000 how did you not have taxable income as you stated initially as your reason for not filing a tax return for 2012 and 2013? Let alone the 1099-R SEPP distribution ?
You must be mistaking this for a different poster from a different thread ?
I never mentioned anything about not filing tax returns in 2012 & 2013 ?
Obviously, you aren’t reading my posts thoroughly. Like after the 1st post where you somehow thought that I thought I could retire with 300k ?
I’m going to opt out of this thread now
2014-08-18 01:17, By: steve, IP: [18.104.22.168]
L9: A 72(t) Years After Retiring ?Yes, I did mix up 2 different threads. When we reply, we can only see the most recent reply, and have to remember all of the preceding info.2014-08-18 04:34, By: dlzallestaxes, IP: [22.214.171.124]