New plan and questions
L1: New plan and questionsI retired (volunteered for severance) 3/31/2016 at age 52. My original plan was to use the money in a taxable brokerage account until age 59.5. Current available cash and stable investmentsis $159,500 andon 2/6/2017 I will be exactly 53.5 years old. If I break that down into 6 years that would be withdraws of $26.589 per year. That amount is fine for me but it leaves no room for extras, major household repairs, travel, etc.
What I am thinking of doing isa 72t using one IRA currently valued at $407,993. If I withdraw $15k per year from IRA and $9k from taxable for the next 6 years that would leave me with $105k in taxable (not calculating loss or gain) for enjoying my time on this earth. This doesn’t take into account the $6k it is currently receiving in dividends yearly.
I’ve run the calculators and come up with different numbers though.
I used all the same inputs, amortization, single life (uniform life when available), 4% return, 2.53% rate. Which do I use?
A couple of basic questions…
Do I have to use the account balance as of 12/31/2016?
Do I withdraw the exact same amount each year or is it re-calculated each year?
2017-01-26 16:45, By: pittsburgpam, IP: [18.104.22.168]
L2: New plan and questionsYou did not mention the fact that you will possibly owe taxes on the IRA distributions, PLUS the 10% penalty on all distributions before 59 1/2.
I assume that you are single. You should figure out your taxable income each year until 59 1/2. If you can keep your taxable income under $ 30,000, then there will not be any tax on “Qualified Dividends” or on “Long-Term Capital Gains and Capital Gain Dividends”.
I suggest that you meet with a financial planner or tax practitioner to schedule out the distributions from your IRA, from dividends, and from your taxable account, in conjunction with the Standard Deduction and Personal Exemption. There is an interplay between these various sources of “cash flow” that should be optimized until you get to 59 1/2.
I suggest that you wait until the Trump Tax Reform is finalized, because he said that he wanted to significantly increase the Standard Deduction and Personal Exemption. This could provide a better opportunity in your planning, and I would not want you locked into a 6 yr. plan before we know what the new tax structure will be. Until then, I would just use the income from your non-retirement portfolio, and supplement it with principal from that account by selling some investments, if necessary, until later in the year.2017-01-26 18:55, By: dlzallestaxes, IP: [22.214.171.124]
L2: New plan and questionsI get 18,914.46 using this site’s calculator. Age 54, interest rate 2.36,balance 407,993, amortization and individual calc. You cannot use 2.53 unless you wait till March for the first distribution, but that would result in ahigher distribution.Use of the uniform table probably accounts for your lower numbers.
If you only want a distribution of 15,000, then you would transfer 324,000 out to a new IRA leaving the 84,000 in the current account outside the plan for emergency needs. That account could be used without busting your SEPP, but subject to the 10% penalty.
For your account balance, you do not have to use the year end balance. In fact, if you transfer out the 324,000 as above you must use the balance in that IRA after the transfer and before you take the first distribution. If you waited until March to take your first distribution, you could use the 2.53 rate and still withdraw the full annual amount for 2017.
Amortization is one of the fixed dollar methods, meaning that you only have to do the initial calculation, then take out the identical amount every year. You can make the distributions in any pattern (monthly, quarterly, annual, random etc) as long as the annual total is exactly correct as reported on the 1099R.
2017-01-26 19:34, By: Alan S, IP: [126.96.36.199]
L3: Thanks for the infoIf I go with the account balance on 12/31 that is 402,488. Bankrate and calcXML come up with 15,545 @ 2.53%. I don’t feel the need to put into another account since I have a ROTH and the taxable brokerage for emergencies.
I have leeway on what I take out of the taxable andwould be fine with the amortization method and a fixed amount. Yes, if I use the uniform life table here I also get 15,545 and wouldn’t need to move anything to get the amount I want.
To the first poster, there wouldn’t be any penalty on the 72t plan. My taxable income would be 15,545 plus the 6k income in taxable. Don’t think I would be paying much at all in income tax.
I do plan on taking SS at age 62 and have determined that it will be 16,900 per year. Not a lot with taking time off for 3 children and retiring early but, it’s good for me. I could continue with the 15k withdraws andhave a decent income of 31k. I plan to notHAVE to touch the ROTH at all.
If I start taking the 15k now, the 159,500 in taxable wouldn’t be near exhausted by age 62 either. If I don’t do it and continue to withdraw 24k from taxable, that would last only 6 years and I’d then need to take out the full 24k from IRA at age 59.5 AND will have exhausted all my extra funds.2017-01-26 20:06, By: pittsburgpam, IP: [188.8.131.52]
L4: Thanks for the infoYou seem to have it figured out fairly well. Your SS benefits won’t be taxable either. You might also consider the extent that you could do ROTH CONVERSIONS from your IRA at -0- or minimal tax rates to reduce your IRA for when you are required to take distributions at 70 1/2 from your IRA.2017-01-26 23:30, By: dlzallestaxes, IP: [184.108.40.206]
L5: Thanks for the infoThanks for the idea of conversions. I’ll look into that. Would need to figure out what’s best for inheritance for my children… traditional IRA or ROTH. My ROTH is 100% in a large value stock fundthough my overall allocation isspread across all accounts. I hope it can just stay untouched and grow for the next 30 or 40 years.
I may wait one more year for the 72t. I already have the cash for this year in savings where I transfer each month into checking and the $500 per month dividends. There is another year in cash in brokerage and I have three 3, 4, and 5-year CDs that mature in 2018,19,20 in IRA. One would think that I had this in mind a few years ago but I didn’t. Just put $16k into each one as part of the cash portion of my portfolio. When I start this, each year I will put $15k into a 3-year CD and take out the one that matures that year so I always have a rolling 3 years in cash.2017-01-27 00:07, By: pittsburgpam, IP: [220.127.116.11]
L6: Thanks for the infoAlthough you can start the plan when you wish, be sure not to use the current month interest rate, because you cannot. For example, if you were to start in Feb, 2017 you cannot use the 2.53 rate. The highest rate is 2.36 since you can use the highest rate of either of thetwo monthsPRIOR to the start of your plan. The highest of the Dec and Jan rates was 2.36. You could use the 2.53 rate if your first distribution was in March or April.2017-01-27 00:45, By: Alan S, IP: [18.104.22.168]