low 72T interest…my idea to get around it

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L1: low 72T interest…my idea to get around itHello. I am 55 and just retired. I WAS going to roll my 401K ( lousy investment choices) into my existing traditional IRA and start a 72T. But unfortunately this will not privide enough money to meet my living expenses. My idea, is to keep the 401K where it is and take penalty free withdrawals until the 72T interest rate perks up, and then roll what ever is left of my 401K into the IRA and start a 72T at that time. I would keep the 401K in pretty safe/low risk investments, because there is a school of thought that the first 2 to 4 years of living expences should be in guaranteed products so that you would not have to sell securities in a potential down market. There is a guaranteed interest “fund” available in my 401K that earns about 4% I could keep it in, and have enough money there to earn 4+ years of income. During this time,invest the traditional IRA in a well diversified growth group of stockETF’s. This would also keep my spouse from having to start his 72T from his IRA at this time as well. He is only 50. I appreciate the opportunity to ramble on about this, and greatly appreciate any input anyone might have.2009-01-06 01:23, By: Newly retired, IP: []
L2: low 72T interest…my idea to get around itYou appear to meet the age 55 separation exception from the early withdrawal penalty, and you even refer to penalty free distributions from your 401k plan.Under those circumstances, the only reason to consider a 72t plan is if your 401k plan would require you to take a lump sum or other unacceptable form of distribution. You should be able to continue taking out the amount you need from the plan until age 59.5, and then you can directly roll the plan to an IRA.Remember, the sole purpose for a 72t plan is to avoid the 10% early distribution penalty, so if you meet the age 55 exception that applies only to the plan of your employer at separation, there is no need for the 72t plan.So check with the plan administrator to determine what options for distributions are offered and how flexible they are. Finally, if you have employer stock in the plan, but not so much that you are not diversified, you may wish to leave those shares alone. Then, at 59.5 you could consider a lump sum distribution and NUA if the appreciation in those shares warrants it.2009-01-06 02:32, By: Alan S., IP: []

L3: low 72T interest…my idea to get around itTake a look at your “after tax cost” of investing retirement plans in stocks. Assume that everything in your plans now will be taxed at regular tax rates of 25%-35%.Now look at the dividend income and growth. If you leave it in stocks in your retirement plans, then when you take distributions of the amounts above your current balances, they too will be taxed at 25%-35%. However, if you were able to have dividend income and growth taxed at the special Qualified Dividend and Capital Gains Rates, then that additional amount would be taxed at only 15% under current tax laws.And, once you reach 59 1/2, you could convert your 401-K and traditional IRA amounts at an appropriate pace to ROTH IRAs, and all future income and growth there will never be taxed to you, your spouse, your children, or your grandchildren !!!!I suggest you take a look at some of this type of RETIREMENT PLANNING.Further, if you can realy plan, and have adequate cash flow, you might consider the benefits of not take the older spouse’s SS Benefits until 70, and get a 32% increase in those benefits for the life of both that person and the surviving spouse !!!! Also, by drawing down the IRA/401-K in lieu of SS benefits, then 15% of the increased SS benefits won’t be taxed either, and future 401-K/IRA distributions after 70 1/2 will be lower because there will be less in those accounts.2009-01-06 05:34, By: dlzallestaxes, IP: []

L4: low 72T interest…my idea to get around it…replyUnfortunately, it is doubtful if the 401K money will last till 591/2, so there will be nothing to rollover. Also we will need to start substantialdistributions from the IRAs at some time..most likely before 591/2….so I cannot see how a Roth IRA conversion, even gradually, would work ( need maximim IRA balance for maximum distribution for a poss 72T). There is very little money in company stock in my 401K, and they only offer like 6 generic index funds. Because I was planning on having at least 2-3 years of guaranteed income in a pot for the first cycle of spending, I was going to take advantage of the interest income fund in the 401K which earns over 4%. Then buy the stock funds in the IRA’s, thanks for your ideas, and any more that you have with this new info I give you would be greatly appreciated.2009-01-06 16:48, By: Newly retired, IP: []

L2: low 72T interest…my idea to get around itThat interest rate they make you use is something I don’t get. What in the world does an interest rate from the previous 2 months before you start the SEPP, have to do with a plan that may run for as little as 5 years or even more than a decade, far beyond the era and economic events that caused those interest rates to have been set?2009-01-06 07:10, By: mikex, IP: []

L3: low 72T interest…my idea to get around itMike:If you’re looking for rationality in most government actions, you can stop wasting your time. Much of it is decided by committee, so we end up with numbers like 59 1/2 and 70 1/2… as if 59, 60, 70, or 71 were somehow too clear.Personally, I don’t see what business it is of the government how or when we choose to spendOUR money… whether it is in an IRA or not. They, however, seem to feel thatwe were sufficiently competent to earn it but not to spend it, so they will “help”us with that. Well, gee… thanks… I guess. :-/As to the interest rate… it is simply a verifiable number, nothing more. We have to start someplace and that is the place they decided to start. I suppose that the theory here is that they do not want us choosing an interest rate on our own by pulling the number out of a hat and they also do not want us to deplete our accounts too quickly. That this is not their business does not seem to be an obstacle to government intervention.Ed2009-01-06 23:44, By: Ed_B, IP: []

L4: low 72T interest…my idea to get around itPrior to 2002-62, the most frequently question on this forum was what is a reasonable interest rate. The second most frequently asked question was how do I prevent my SEPP from going broke. Prior to 2002-62, going bustcreated a 10% penalty. I’m not saying that 2002-62 is right or wrong, but for the most part, people prior to its implementation were making long termdecisionsbased on short term interest rates – picking 8% or 9% and then watching the actual return drop to 3% or4%.If I were going to start a SEPP today, I would merely do it using recalculation so that I would get the benefit of any increasing futureinterest rates and increase in age… both of which would result in higher distributions.We can complain about 2002-62 all we want, but it will probably not change. A SEPP offers a planningopportunity. We can either plan or complain- I wonder which will produce the better results.Just my thoughts.Gfw2009-01-06 23:56, By: Gfw, IP: []