L1: calculationI have a couple of questions.I”m getting ready to start a 72t in June.I turned 56 in March and my financial advisor told me my 72t distribution would be about 28,000 a year before taxes.I have 320,000 that I will have in my retirement account.Is this estimation correct?If I”m understanding the formula correct it would be a lot less.Also I know I have to recieve payment for five years but after I turn 59 1/2 am I allowed to withdraw money penalty free without any consequences to the 72t rules?2008-05-09 05:56, By: obewan, IP: [220.127.116.11]
L2: calculationAfter the 5 years and age 59.5, you can pretty much do what you want. The 5 years is measured as365 days x 5 1 from the date of tetheirst payment. You can use the Last Payment Date calculator http://72t.net/Sepp/Irc72tLastPaymentDate.aspxto determine the first mimodificatuionate.As far as tethemounts are concerned, start by looking at http://72t.net/Sepp/Irc72tCalculator.aspxand ebenteringour information.
2008-05-09 06:03, By: Gfw, IP: [18.104.22.168]
L2: calculationI got:$17,742.81 per year with Amortization (highest payout) method, single life, and using April 08 Max Fed Midterm Int rate of 3.45%. You can only go as high asmax of April or May 08 Fed Midterm int rate, and May is less (see table in this site), so there is no way I see he can show you correct calculationsfor the $28K amount. It appears he used an interest rate of about 7.72%, which is not allowed.If you did this it would be invalid from day one, so I would be leery of the quality of his 72t calculations “work”. You should familiarize yourself with this site”s calculator, then go to his office, and log on to this site, and show him what the calculator says for your info, then ask him to explain what calculator he used. Spend some time going over previous posts on this site to get very familiar with this process, and the pitfalls.You need to be more informed than this advisor.
If you do a 72t, I would recommend that you stay with fixed payout amount each year, and not opt for annual recalculation, which has an upside if interest rates go up, but they could also be less, and it opens you to possibility of miscalculation in the future, which could “bust” your plan and cause you to owe 10% penalty on all distributions taken to date. It also makes it easier to know the exact gross withdrawal that is needed for every year to be in compliance. In first year, you have two options.. with June start date, you could take 7 months of payments in 2008, or ask for the first payment in June to cover January thru June, and then have them continue regular monthly payments after that (if being paid monthly).On your other question, if you have another IRA, you can start taking other monies from it after getting to 59 1/2 without causing a problem, with your 72t (SEPP) plan IRA, but as Gordon said, this SEPP IRA cannot be “touched” (for other money–or to slow down the payments ) until after 5 years on the calendar have passed from first payment date of the SEPP (with added assumption that you have taken five years worth of payments), and at that point, you will be 61, and it will be sometime in June of 2013. KEN2008-05-09 06:25, By: Ken, IP: [22.214.171.124]
L2: calculationHello obewan:
I get substantially lower annual distributions as well; in the neighborhood of $17,500 to $18,000. I think it prudent to challenge your financial advisor with respect to his math.
[email protected] 06:27, By: TheBadger, IP: [126.96.36.199]
L2: calculationWith respect to your final question, your last payment under the plan would be in May, 2013. If you bust the plan prior to the modification date, you will not owe the penalty on distributions you took after age 59.5, but you will owe the retroactive penalty on distributions you took penalty free prior to age 59.5. In addition, the interest would continue to accrue on the penalty dollars that you do owe since more time will have elapsed since the original penalty would have been due.
You can see that the downside of starting a plan quite close to age 59.5 is partially offset by the fact that only your pre age 59.5 distributions will be penalized if you bust the plan.
Having another IRA or other retirement account outside your 72t plan would provide you with a source of penalty free distributions after age 59.5 as stated previously. Prior to 59.5 it would provide a source of funds normally subject to penalty but providing an option to busting your 72t plan and incurring the retroactive penalties.2008-05-09 16:15, By: Alan S., IP: [188.8.131.52]
L2: calculationThanks for all of the good information.This site has been a great source of info for me as I prepare to get my retirement account in order.I do have a separate IRA which I will keep separate and use that for any funds I may need down the road.2008-05-09 21:07, By: obewan, IP: [184.108.40.206]
L2: calculationIf you are going to set up a SEPP 72-T, I suggest that you get a different financial advisor ( or mutual fund group like Vanguard) who understands the nuances of SEPP 72-T.2008-05-09 21:27, By: dlzallestaxes, IP: [220.127.116.11]