Midterm Rate Trend
L1: Midterm Rate TrendI am 52 years old, downsized, retired. I was hoping to start a 72t sepp on a $500k IRA (ammortization method) this year. Since I will have a fixed distributioin amount for 6 years, I was hoping to generate more than the 120% midterm rate currently allows. Do you think the midterm rate will rise much by January 2011? I have been waiting all year, but the rate trend is downward and not upward. By January 2011 I will have to take some cash out of my IRA to live. If the rates don’t rise I am considering taking an early distribution and paying the 10% penalty. Any thoughts on the midterm rate trend into 2011?2010-06-10 16:20, By: telcoguy, IP: [126.96.36.199]
L2: Midterm Rate TrendHello, Telcoguy:
My thought is that it is almost impossible to know what interest rates will or will not do in the future. Still, rates have been quite low for an extended period, so it is likely that we will be seeing higher rates at some point in the near future. When that will be is anyone’s guess, however. It would seem most likely that a rise in rates would occur after the November elections. Any such rise is likely to be small, however, perhaps in the area of 0.25% to 0.50% to avoid shocking the economy.
One strategy that you might consider would be to split your retirement money into two IRAs, one larger and one smaller. You could then set up a SEPP plan on the larger of these and withdraw the maximum amount allowed by IRS rules. You would owe income taxes on this money but no 10% penalty. Withdrawals from the smaller IRA would then be used to supplement your income up to the level you need. This money would be taxed as income and have an additional 10% tax on it. This strategy would eliminate the majority of the 10% tax owed but not all of it.
You could use the calculators on this web site to ascertain proper amounts for both IRAs via some “what if” type calculations where you just plug in various amounts for both IRAs and see what the resulting total withdrawals would be. Don’t forget to allow for the taxes owed on this money.
2010-06-10 17:08, By: Ed_B, IP: [188.8.131.52]
L3: Midterm Rate TrendEd
Thanks for the ideas. I may end up splitting the choice between 72t and early withdrawal as you suggested to get the best compromise. I planned on using the 72t option as my job came to an end. I didn’t plan on historically low rates and huge market losses. That’s life. This site has been a blessing for me. I started a 72t on a $200k IRA in January 2009 and it has provided a nice monthly check for my wife and I. I could not have gathered all the 72t information without this wonderful forum.
Thanks again2010-06-11 15:24, By: telcoguy, IP: [184.108.40.206]
L4: Midterm Rate TrendCLARIFICATION If you are 52, then you have 7 – 7 1/2 years until you are 59 1/2, not 6 years as you stated in your posting !!!!2010-06-11 15:32, By: dlzallestaxes, IP: [220.127.116.11]
L4: Midterm Rate TrendTelcoguy:
You’re more than welcome to any help I can send your way. I’ve gotten a TON of help from the great folks on this web site, a number of whom are real experts in this area of financial planning.
I know what you mean about planning and the things that can upset the apple cart. I was fortunate to retire in late 2004, start my SEPP in early 2005, and be done with it as of 3/15/2010. Like many others here, I lost a significant amount of money in the 2008 bear market as well as the 2001 bear market. While never pleasant, these paper losses remind me of the ocean, with money washing in and out like the tide. It happens. We just need to understand that it is part of the game and do our best to plan around it. Not that we succeed every time, of course, but at least we have a plan. A wise fellow once told me “He who fails to plan, plans to fail”. I believe that to be the case. All too many people do not plan for their retirement and then are so surprised when things do not work out as they had hoped. My plan has worked reasonably well, considering all that has happened in the stock market and the economy, so I am satisfied with it. As with everyone else out there, yes, it definitely could have been better… or worse!
Ed_B2010-06-11 16:34, By: Ed_B, IP: [18.104.22.168]