Going back to work after taking 72T payments

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L1: Going back to work after taking 72T payments
I am 53 years old, and have been retired for 16 months. I am considering going back to my old job full time, but have taken 72T monthly withdrawals of $731 for the last 16 months. If I do this, do I pay the 10% penalty on all my withdrawals, plus interest?
If so, what would the interest ratebe calculated at? Would my 72T be then stopped, until I re-calculate a new one at later date?
2012-01-30 21:57, By: Lodibob23p, IP: []

L2: Going back to work after taking 72T payments
You have withdrawn $ 11,696. Penalty would be $ 1,170, plus interest at maybe 5%, which is no big deal in the total picture that you are going back to work. You probably paid income taxes at a relatively lower rate for 2011 than you were in 2010 or will
be in 2012, probably at least 10% less at 15% rather than 25%.
Keep the money and pay the tax penalty, not that there is any alternative.
2012-01-30 22:52, By: dlzallestaxes, IP: []

L2: Going back to work after taking 72T payments
You have3 choices here, and it may not be easy to decide which is better:
1) Bust the plan and stop distributions – you are only about 1/6 of the way through your plan and paying the penalty on $11,696 plus the fairly low interest rate and period rate is applied to will free you of the plan and preserve
your IRA balance and tax deferral. If you do this, you can start a new plan later on if you need to.
You would rep[ort a volunatarily busted plan as of 12/31/2011 on your 2011 return (Ref PLR 1999-09059)
2) Just continue the plan, especially if you are not confident the job will last or you will not retire again well before 59.5
3) Split the difference by making the one time adjustment to the RMD method effective 1/1/2012. This will reduce your distributions perhaps 40%, but you will have to do a new calculation every January toreflect yourlatest account balance and age.
I would not worry about the interest charge as it will not be much since your 2010 distributions were small and the interest rate for this entire period was 4% or less. Your 2011 return can include the 2011 penalty without any interest depending on your
tax payments for 2011 vrs the safe harbor against penalty.

2012-01-30 22:52, By: Alan S., IP: []

L3: Going back to work after taking 72T payments
Can I continue the plan if I only go back to work for two more years? I am a little confused. What would happen if I return to work now, and then retire again in two more years?
2012-01-30 23:05, By: Lodibob23p, IP: []

L4: Going back to work after taking 72T payments
You would take $ 8,772/year = $ 17,544 in distributions to be taxed on top of your salary over 2 years. That would be at least $ 1,754 in extra taxes in the 25% tax rate vs in the 15% tax rate if you weren’t working.
As I said, stop the SEPP 72T now. YOU CAN ALWAYS START ONE AGAIN IN A FEW YEARS IF YOU STOP WORKING, EVEN THOUGH YOU WOULD HAVE TO BE IN THAT PLAN FOR 5 YEARS. At that time you might want to separate your IRAs into 2 accounts, and either set up 2 different
SEPP 72-T plans, or 1 plan and keep the other IRA account in case of emergency.
2012-01-31 01:33, By: dlzallestaxes, IP: []

L4: Going back to work after taking 72T payments
Question for Alan, DLZ,et al– IF Lodi Bob kept taking same distribution because he may start working again for a few years, he would be better able to retire again prior to 59 1/2, since his 72T was still that original $$ withdrawal amount,
as opposed to cutting his distribution by switching to RMD,and then wishing he hadn’t reduced it– (the next time he retires).I thought he may be able to put $5k into a deductibleIRA (start a different one from the SEPP plan IRA) in each year he works
again, and use that IRA deduction as a partial offset to his continuing $8k (rough numbers) annual 72T withdrawal, to lessen the tax effect. In effect, he is putting back $5k of the $8k he is taking out while working, and netting the tax to be on $3k each
year from his ongoing IRA withdrawals while working again. Does that makes sense.. as long as his company offered 401k or retirement plans (or his salary level) does not prevent him from doing annual IRA’s while working again. Just a thought. KEN
2012-01-31 05:17, By: ken, IP: []

L5: Going back to work after taking 72T payments
Very innovative approach. And that way his SEPP wouldn’t be extended longer until 61 or later if he re-started it in a couple of years.
2012-01-31 07:04, By: dlzallestaxes, IP: []

L6: Going back to work after taking 72T payments
Thanks DLZ. He could also put whatever he wanted (up to $5k annual limit if memory serves me correctly for his age) into that IRA, to adjust the amount of money coming out of 72T that he may not need that year, and not do it at all if he needed the 72T
money while still working, so it gives a lot of flexibility. KEN
2012-01-31 15:05, By: Ken, IP: []

L7: Going back to work after taking 72T payments
It is a very good idea worth considering. Actually, at his age he can contribute up to 6,000, but if he is participating in a retirement plan at work his MAGI may be too high to take the deduction.
If he cannot take the deduction, he could still contribute and report the contribution as non deductible on Form 8606. While this contribution MUST be made to a separate IRA account to preserve the 72t plan, adding basis to his
IRAs in total willminimally reduce the taxation of the 72t payments, although nowhere close to the value of the deduction if he qualified for the deduction.
Even better, if he has a 401k or similar retirement plan at work, he should contribute to that first, at least up to the employer matching limit.Contributing up to the amount ofthe 72t paymentwill completely offset the taxes
resulting from the 72t plan and he could actuallydefer up to 22,500unless limited by a plan % limit.If he then leaves the company again, this balance can be rolled over to a new IRA account to be usedfor emergency needs without having any affect on the
72t plan.

2012-01-31 17:23, By: Alan S., IP: []

L8: Going back to work after taking 72T payments
I do not suggest to anyone to make “non-deductible” IRA contributions for anyone who already has a “significant” IRA total. They will only be able to recover that “basis” tax-free over a long extended lifetime of distributions based upon the 8606 form calculations
each year.
If they have a 401-k/403-b, and no IRA, then the “non-deductible IRA” would be a good idea. And then immediately roll it over to a ROTH IRA, for the best of all worlds, taxwise.
2012-01-31 18:00, By: dlzallestaxes, IP: []