Is My 72(t) Plan OK?

L1: Is My 72(t) Plan OK?I’m about to start my 72(t) & here is my plan: The 72(t) will be withdrawn from a federal government Thrift Savings Plan (TSP). I just retired at age 50, and am able to begin monthly withdrawals. I used the 72(t) Payment Calculator from this website, and inputted the following information:Owner’s Age: 50Beneficiary’s Age: 46Method to Illustrate: AmortizationTotal IRA Account Balance: 447936.88Amount Allocated to SEPP Plan: 447936.88Reasonable Interest Rate: 6.13Actual Investment Rate: 6.00IRS Penalty Interest rate: 8.00Use Joint Calculations: NoThe calculation comes up with:34.2 Years Life Expectancy, and$31,587.58 [$2,632.30/mo] Amortization MethodThe Total IRA Account Balance ($447,936.88) I used is my TSP account balance as of 07/20/2007. Since the TSP only provides for monthly payments in whole dollar amounts, I decided upon:$31,584.00 [$2,632.00/mo] Amortization Method$31,584.00 is less than $31,587.58, which is 120% of the 08/01/2007 mid-term interest rate of 6.13%. QUESTIONS:1) What is the interest rate (something slightly less than 6.13%) that I am using to obtain my 72(t) Annual Payment of $31,584.00 ?2) Does this Plan appear OK? 2007-08-13 10:50, By: Ken, IP: [64.222.104.205]
L2: Is My 72(t) Plan OK?As you will see from a zillion other postings, it is rarely correct to utilize ALL of your IRA balance in a SEPP 72-T plan. We almost always recommend keeping a “security fund” for emergencies, and unforeseen circumstances. This is recommended because in your case you have 9 1/2 years until you reach the magic age of 59 1/2. If you need more money in the later years of this period, say when you are 58, you would be hit with the 10% penalty RETROACTIVELY on ALL DISTRIBUTIONS FROM THE BEGINNING. In other words, after 8 years of $ 31, 584 of distributions, ANY ADDITIONAL AMOUNT, even $ 100 or $ 1,000, would result in a penalty of about $ 25,000 ( 10% of the cumulative $ 250,000) PLUS THE TAXES ON THAT $ 25,000 IF YOU HAD TO TAKE THAT FROM THE IRA PLUS 10% PENALTY ON THAT WITHDRAWAL !!!!
If you keep a portion in your IRA, say 25% or $ 100,000, and only transfer 75% or $ 335,000 to the SEPP 72-T, then only the amounts taken periodically, when needed, would be subject to the 10% penalty on only THAT AMOUNT.2007-08-13 12:40, By: dlzallestaxes, IP: [151.197.217.59]

L2: Is My 72(t) Plan OK?I have a separate IRA aside from the TSP. At a minimum of a 5% annualized average return, this fund will continue to pay out this amount for almost 25 years. At 6%, it will last almost 32 years, and so on. I believe that these percentages are attainable & not a stretch.1) Does my 72(t) Plan itself appear to be in compliance with IRS expectations? I”d like to get some input on that before I submit this in the next few days. 2) Also, any idea what the exact interest rate is based on my calculation? I know that it is slightly less than 6.13%. I am not that mathematically inclined to know what that figure is, but would like to know.thanks – 2007-08-13 13:53, By: Ken, IP: [64.222.104.205]

L2: Is My 72(t) Plan OK?Hello Ken:
Your plan is statutorily correct; e.g. it complies with Rev. Ruling 2002-62. Is your plan okay is really your decision. Your actual interest rate is 6.129009%
TheBadger
wjstecker@wispertel.net
2007-08-13 16:20, By: TheBadger, IP: [72.42.66.112]

L2: Is My 72(t) Plan OK?Ken,
Remember that theslightly less than Aug 2007 max rate of 6.13% that you are choosing for your SEPP plan will be valid only for plans that have first payment made in either Sept or Oct of 2007, and can”t be used if first payment is made in August. They are estimating that the Sept 2007 rate maygo down a bit.
Another Ken
2007-08-13 18:05, By: another Ken, IP: [75.67.65.254]

L2: Is My 72(t) Plan OK?to Badger & Ken:thank you for your replies. I believe I”m ready to go forward with my 72(t) plan!Ken2007-08-13 18:36, By: Ken, IP: [64.222.104.205]

L2: Is My 72(t) Plan OK?A couple secondary details.
Be sure to make a copy of the on line statement or other valid documentation of your account balance as of 7/20. Since it is not a month end statement, it may be difficult to document this starting balance later on if you don”t get the copies now. You are probably planning on a Sept start date, since you can”t start in August and use the 8/1 interest rate.
As noted in a prior post a few threads down, the TSP does not provide formal support for a 72t plan, so you are actually using the their fixed installment option to meet your distribution requirement. This is fine, as long as the plan administration is flawless, but you probably are not going to get the exception coding on your 1099R, so will have to file a 5329. Although you will not have the control you would have over an IRA for making adjustments, you will have to be particularly vigilant to be sure nothing goes wrong with your fixed installment distributions.
I guess you could say that since IRA custodians are doing less all the time to partner with the taxpayer in making sure they comply with 72t requirements and/or providing the 1099R coding, they are becoming more like the TSP plan, where you can comply with requirements, but are pretty much on your own.2007-08-13 19:27, By: Alan S., IP: [24.116.165.60]