retirement withdrawl

L1: retirement withdrawlMy wife had a stroke in April 2007, which left her unable to care for herself. I am 56 and my wife just turned 60 years old. She was approved for and just started receiving social security disablity. I have a 401k and an IRA. I can not officially retire because we need the medical benefits right now, but can”t go back to work full time because I need to take care of her. I want to work part time, which I will make approx 30,000.00/year. Can I take a 72-T distribution without any fines or penalties?2007-11-24 10:08, By: kathleen, IP: [64.119.53.149]
L2: retirement withdrawlSorry to hear about her condition, but at least one plus is that she is receiving the disability after only 6 months, which is a much shorter time period than most cases. That also means that her SSD will not include back payments for years, which can result in having to decide on a complex tax election to level out the taxes.
The whole purpose of a 72t is to avoid early withdrawal penalties, so I guess you last question is whether you are eligible to start a plan. You are always eligible, the question is usually, is there another penalty waiver that might apply so that you can avoid the formalities of the 72t. The key here is that the disability exception ONLY applies to the person who owns the retirement account. Her disability cannot waive the penalty for distributions from your retirement accounts. If she has any retirement accounts of her own, distributions would be penalty free, but if the only accounts are yours, you will need a 72t to tap the account without penalty.
Is the 401k with your present employer? If not, and you separated from the firm with the 401k in the year you turned 55 or later, you can probably tap those accounts without penalty. If the 401k is with the company you are with, you probably do not qualify to roll it over. That leaves your IRA as a source for the 72t plan, as you probably expected. If you start a 72t, it must last 5 years, since you are 56.
Further clarification depends on the where the 401k is located, whether your part time work will be with the same firm, and what their plan says about separation from service if you work limited hours. You need to get answers to those question before starting a 72t, which would typically be your last option to avoid the early withdrawal penalty.
You should also determine your total expected income in order to determine how much of the SSD benefit will be included in your AGI. Looks like a minimum of 50%, and quite possibly the maximum of 85% will be included if you earn 30,000, take IRA 72t distributions and have SSD payments.2007-11-24 10:57, By: Alan S., IP: [24.116.165.60]

L2: retirement withdrawl The 401k is with my current employer, which is where I plan to work part time. The IRA is with Edward Jones, it was a pension buy-out approx 7 yrs ago. SSD annual income will be 7,200/yr, plus the 30,000.00 I plan to earn working part time. Is the 72t the only option to tap into any of my retirement accounts, if not is it the best? How much of a penalty will there be, if any?2007-11-25 09:28, By: kathleen, IP: [64.119.53.149]

L2: retirement withdrawlApparently you do not have Long-Term Care insurance. After your wife is on SS Disability for 24 months, she will automatically be eligible for Medicare, rather than having to wait until 65.
SEPP 72-T distributions are “early distributions” from IRAs before 59 1/2, or from 401-Ks before separation from service. If you do not set up a SEPP 72-T plan, then your “early distributions” are subject to a 10% penalty (i.e. increasing you federal income tax from 15% to 25%, or 25% to 35%, depending upon your tax bracket).
On another issue, you should review your “estae planning documents”, and reconsider who you have named as executor of your estae upon your death, and who is your surrogate representative in your Health Care/Medical Directive, Living Will, Durable Power of Attorney, and any trusts. Someone should probably be named other than your spouse. You should consider transferring your investments to a Revocable Living Trust with a similar person selected as the secondary trustee. (You would be the primary trustee.)
Similarly, consider setting up a trust as beneficiary of your 401-K and IRA, for your wife”s benefit, so that your named trustee can take care of it for her over the years after your death.
2007-11-25 11:49, By: dlzallestaxes, IP: [141.152.255.7]