Getting Ready

L1: Getting Ready
Gathering information to shut down the corporate life in a few weeks or so. 10/1964 birth yr so will be a little short of 54 when I’m planning to leave. Currently have a 401k with for simplicity lets says 1,000,000 currently. what I’m a little fuzzy on is if there is a similar rule with 401ks (outside of rule of 55) that is similar to 72t? Just to make sure I haven’t missed an option. Looking at the IRS site didn’t help but I’m easily confused :).
My current plan is to work with Fidelity (pending) on moving the 401k into an IRA. I’ve already setup two IRAs to manage enabling the 72t strategy. Currently looking to generate 54-57k out of the IRA with SEPP. The process end to end in order to enable I still need to walk through.
MCNE
2018-04-18 17:41, By: MCNE, IP: [216.163.247.1]

L2: Getting Ready
We are in similar situation. Too young for Rule of 55 or the penalty free age of 59.5. 72(t) is your penalty free option. Same one I am pursuing. I happen to be 9/1964. You can also do penalty free on your Roth contributions if you have any. Those are after-tax, so you already paid taxes. You will have to pay on any part that is a gain on the Roth. Go 72(t)!!!
2018-04-18 19:07, By: Rickyrod1, IP: [71.41.252.34]

L3: Getting Ready
If both of you can wait until Jan 2019, and if your plans allow you to remain in them and will allow periodic partial payments whenever you want any money, then you should wait a few months. You are allowed to use the “55 rule” at any time in the year that you WILL BECOME 55.
2018-04-18 19:29, By: dlzallestaxes, IP: [173.75.252.16]

L4: Getting Ready
I can not last that long plus would need to still move my 401k to my current employer that I wouldn’t do anyway. Looks like the 72t is the way out for me but it looks like my questions on the 401k is answered.
2018-04-18 19:51, By: MCNE, IP: [216.163.247.1]

L5: Getting Ready
But, can you set up your own business until 2019, set up a solo 401-K, and transfer your 401-K to that plan ? If so, then you could use the “55 rule” next year.
2018-04-18 19:57, By: dlzallestaxes, IP: [173.75.252.16]

L6: Getting Ready
That could be a solid plan B if needed.
2018-04-19 23:46, By: MCNE, IP: [173.95.166.23]

L7: Getting Ready
It wouldn’t lock you into a 5-year plan, and would give you complete flexibility for cash flow and tax planning that you should discuss with an experienced tax advisor and/or financial planner.
2018-04-20 04:25, By: dlzallestaxes, IP: [173.75.252.16]

L8: Getting Ready
Brilliant! I love reading solutions like this one! I wonder how expensive could be to execute it and if I can maintain my Vanguard investments in the process.
2018-04-20 14:41, By: Rickyrod1, IP: [67.79.43.130]

L9: Getting Ready
Rickyrod — The cost to set up a solo 401-K is minimal. I doubt if it would be more than $ 1,000 – $ 1,500, and possibly much less.
If you currently have a 401-K with an employer, or an ex-employer, you could probably do an electronic transfer of your securities to your new solo 401-K. (There might be some fund unique to that custodian that you might have to liquidate into cash, and transfer the cash, and buy something else at Vanguard, but just for that one or a couple of funds.) If you have an IRA at Vanguard, you should be able to set up a solo 401-K account at Vanguard, and then do an electronic transfer of your IRA investments to your new solo 401-K account at Vanguard.
Either way, it should be an easy process.
If someone is at Fidelity, it should be just as easy to follow these procedures there.
2018-04-20 16:24, By: dlzallestaxes, IP: [173.75.252.16]

L8: Getting Ready
Correct, I’m not concerned about the 5yrs as much any longer due to how I could utilize my liquid cash but understood. The Financial planner discussion has been had and I really didn’t completely align with them but a lot of valuable info for sure. Looks like a call to Fidelity is next to understand how the execution will unfold and moving my 401k into the IRA.
2018-04-20 14:51, By: MCNE, IP: [173.95.166.23]

L3: Getting Ready
You are technically correct about paying taxes on the earnings on the growth in the ROTH. But, from a practical approach, you would probably not be taxed on the growth in the ROTH because the sequence of distributions from a ROTH are Contributions, then Conversions, and lastly “earnings” (i.e. interest, dividends, and/or appreciation). It is normally best to try to avoid taking money from a ROTH, especially if you have a spouse, children, and/or grandchildren, because of the “dynasty” aspect of ROTH IRA’s never being taxed to any of these beneficiaries, ever !!!
However, if there is no alternative, then try to take only contribution and conversion amounts until you reach 59 1/2, because after 59 1/2, “earnings” are not taxed either.
2018-04-20 16:31, By: dlzallestaxes, IP: [173.75.252.16]

L2: Getting Ready
I thought I would post this here since I tried to quantify my thoughts with this post. I found the IRS posting on exceptions for early distributions and see that 401k plans are allowed with a series of substantially equal payments. Unfortunately where my 401k is located this option is not supported. Can’t manage equal payments in the plan so moving to an IRA in a couple of months.
2018-05-09 19:54, By: MCNE, IP: [2606:a000:111d:820d:12e:e43e:7e29:c394]

L3: Getting Ready
Some gotchas on setting up Fidelity Traditional IRA for SEPP.
Basis of the account transferred to SEPP is based on the closing price of the securities on date of transfer. This is what Fidelity will use to calculate loss or gain. Not really relevant since this is a Traditional IRA and you will need to pay taxes on any monies withdrawled.
Valuation of the account for SEPP is based on the closing price of the securities and cash in account on day of first SEPP withdrawl. So technically you take a withdrawl of your SEPP after the market closes.
But it takes 3 days to get cash from securities after you sell them. So you need to sell your securities first for your first SEPP payment, then pick a day when the market closes that will value your entire SEPP account, including the cash of course.
Alternatively, you could transfer cash from another IRA to meet your first SEPP payment, but you need to do that on a day before you take the SEPP payment. Since once you start SEPP you can not make adds or any other withdrawls not in accordance with SEPP.
So you could transfer the money in Fri, Sat, Sun nite and make your SEPP withdrawls Monday but it would be valued at Monday closing price.
I think it is safer to just use the monies in the SEPP account What this means, is that if you want a specific amount for SEPP annual payment, using the 72t calculator willl only give you an approximation. Because the exact amount is determined based of the account balance at the close of the business day when you take your SEPP withdrawl.
I plan to do amortized annual payments for my SEPP, monthly and quarterly have to be to the penny, and I am likely to miscalculate. And this way it is the same amount every year.
2018-05-12 10:27, By: BPrincess, IP: [162.251.232.55]

L4: Getting Ready
A lot of this make sense so thank you for sharing. I don’t plan to start the distribution immediately after the transfer but planning on 45 days or so.
I want to have time for the transfer and investments to take place in the IRA before I calculate the distributions with them. I am concerned about what that gap might be between the 401k and the IRA.
However I did pad it some (50k) when calculating a possible distribution.
i think an annual distribution would work fine but my wife isn’t onboard with that. I really don’t understand her concern as long as you pull in the same amount for the year. You just have to manage the money.
When I start the the distribution this year I want one lump sump around August 2018. Question is can I pick when for the annual each yr. and does it need to be at the same time during the yr.
2018-05-12 13:00, By: Mcne, IP: [2606:a000:111d:820d:3c74:140a:9e2e:6d52]

L5: Getting Ready
No. you don’t have to take payments at same time. annual payments have lots of flexibility
Year: 08/01/2018 – 12/31/2018 take first SEP payment$52,972.66
Year: 01/01/2019 – 12/31/2019 anytime during this year next SEP payment$52,972.66
Year: 01/01/2020 – 12/31/2020 ” ”
Year: 01/01/2021 – 12/31/2021 ” ”
Year: 01/01/2022 – 12/31/2022 ” ”
Year: 01/01/2023 – 08/01/2023 can’t touch it, no withdrawls or you will bust SEPP plan.
So you sell your securities anytime during the year, when you think it has reach high for the year. But be sure to allow for the 3 day clearing, before withdrawl. Since your amount is high, sell 1/4 of annual payment each time. Since it is hard to get the top price. Then withdrawl the cash all at once during the year.
Have you considered your ObamaCare income limits? In CA it is $24,360 for a couple. Make under that, you get Blue Cross SILVER 94 PPO for $225 a month. With $5 Copay, $8 lab tests and $3 copay for drugs. And your annual family deductible is $150. The plan pays for 94% of health care costs, thats why its so cheap. Just have to keep the income limit low.
My former company retiree medical costs twice as much for a single person, with higher copays and deductible and was essentially the same plan. You can see out of network doctors for more $, but in CA this is the most popular plan.
If there is any way you can use savings to fund your lifestyle, take advantage of this while you can! Obamacare won’t last forever. Especially now with the Trump tax plan with increased exemptions of $12K pp, your income tax on $24,360 is nothing.
2018-05-12 16:56, By: BPrincess, IP: [209.234.253.167]

L6: Getting Ready
Kindly explain the year you can not touch or bust the plan. Year 2023
2018-05-12 17:50, By: Motoman, IP: [184.60.1.208]

L7: Getting Ready
I think it has to do with when I turn 59 1/2. I other words I most likely would need to have the same distribution that yr I’m guessing.
2018-05-12 18:18, By: MCNE, IP: [173.95.166.23]

L7: Getting Ready
SEPP is five substancially equal periodic payments. It is the LONGER of 5 years or annually til you reach 59.5 not the shorter of. So even if you are taking the money when you are 54. That year you will be turning 55.
So you have to “lock in” the account for 5 years to not bust the SEPP. This doesn’t mean you can’t trade securities in the account, just that you can’t add or withdrawl except for your SEPP payments.
Because the 5 years period starts when you make your first annual withdrawl, you have to count all the 60 months of elapse time, even though it is the 6th calendar year.
This calculations is based on taking the first annual SEPP payment on 8/1/2018. On 8/2/2023 you have fulfilled the SEPP and you are older than 59.5 you are not restricted in any amount you want to withdrawl. You can also add to the account, just like a traditional IRA with all it’s limitations.
Thus if you want the shortest time period to when you can legally withdrawl without penalty at 59.5, you should start SEPP withdrawl when you are 54.5.

2018-05-14 08:13, By: BPrincess, IP: [68.5.196.104]

L8: Getting Ready
Correct from my understanding. The only thing is I’ll be 54 in 2018 so if distribution does happen on 8/1/18 I’ll only be 53 and wont turn 54 until 10/2018. I’m looking at a longer period or into 2024. I guess my question would be would I also need to take a distribution of equal value in 2024 as well? Really not a huge deal if I do but want to get it right.

Date Age 59.5
4/30/2024

5 Year Date
8/1/2023

1st Modification Date
5/1/2024

Thanks.
2018-05-14 23:55, By: MCNE, IP: [173.95.166.23]

L9: Getting Ready
Sorry, I misread thought your birthday was 10/1963. Yes, you will need to take a distribution of SEP payment in 2024. Because the SEPP has to continue til you are 59.5 and at the 5 year date, you are not 59.5.
So you will need 7 annual payments of SEPP if you start on 8/2018 when you are 53.
But if you wait til after your 54th birthday in 10/2018 you can take 6 annual payments of SEPP.

2018-05-15 01:41, By: BPrincess, IP: [209.234.253.198]

L10: Getting Ready
No worries Iappreciate the assistance. Isn’t is 7 distributions regardless of a 08/18 or 10/18 start.Because at the start of the 2024 yr I wont have met the age requirement.
2018-05-15 18:44, By: MCNE, IP: [216.163.247.2]

L11: Getting Ready
Your age as of 1/1 of any year is immaterial. The only date that counts is the day you reach 59 1/2.
2018-05-15 20:08, By: dlzallestaxes, IP: [173.75.252.16]

L12: Getting Ready
In 2024 you have several options before you reach 59.5. You can distribute nothing, a full annual amount, or a pro rated amount of 25% of the annual amount (3 months in 2024 before the month you reach 59.5). Therefore, plan to wait until Jan, 2024 and then choose the best choice based on your situation at the time. If you have enough funds to get you to age 59.5, you would normally not take out anything until after 59.5 when you can take out as little or as much as you wish, and you will only get one 1099R coded 7.
2018-05-15 20:50, By: Alan S, IP: [24.117.172.15]

L13: Getting Ready
It’s nice to have these options because after I turn 59.5 I can withdrawn more if I need it in 2024. I’ll need to remember that and probably will take yearly distributions and then setup a one monthly bank to bank transfer that will satisfy the spouse with a monthly feed.
Good stuff, Thanks!
2018-05-19 18:31, By: MCNE, IP: [45.26.144.153]