returning to work after 72t has started

You are here:
< Back

L1: returning to work after 72t has startedI have an opportunity to return to work with my former employer after being “retired” about two years ago. I started a 72t distributionlast year which still has 5 more years to go. My 72t is being distributed from the account that held my 401k when I was working, I had also rolled my lump sum pension distribution into the same account when I retired.My question…….since it will be the same employer, I suspect any new401k contributions I makewill just roll into the same account, will this be a problem if I maintain my 72t distributions as well? If it is a problem, meaning not allowed and I can not set up a second 401k account then are there some other options that I should consider? I realize I can stop the existing disribution and pay the penalty but I would prefer not to do this.My plan would be to use my current set up of monies and budgetto maintain what has become my “new” lifestyle and thenusing any money I earn in returning back to work as completely extra and use it to pay off my existing mortgage.Thoughts?2011-03-06 15:06, By: Thought I was Retired!, IP: []
L2: returning to work after 72t has startedIt sounds very much like you are calling your IRA a 401k account. Assuming you rolled the original 401k and lump sum pension plan into an IRA before setting up your 72t plan, when you return to work and sign up for the 401k again, your contributions will go to the 401k plan and this will not affect your current 72t plan.You now have so many options, it will take some thought and time to explore them all:1) Stop distributing from the IRA and roll back the largest distribution you took in the last 60 days. You will owe the penalty but will be free of further obligations that will put you into a higher tax bracket. 2) If you cannot afford to roll back any distributions, you can at least stop taking new distributions for several months to give you time to determine your job stability, finances etc. Your current plan only requires that you distribute the annual total before the end of the year. You can therefore postpone the final decision to December whether you want to bust the plan or continue it.3) If you continue the plan, the extra cash should enable you to max out your new 401k contributions. This will offset your tax bill to some degree and you would be replenishing your retirement assets. If you are 50, you can contribute up to 22,000 to the 401k, but that is probably less than you are taking from the IRA.4) You can also continue the plan ata lower distribution amount by making the one time switch to the RMD method. That usually results in a reduction of around 40% in your calculation. You must then continue using that method for the 5 years remaining. You could probably make the change effective 1/1/2011.5) Paying off the mortgage is often not a good idea, especially if you have a good interest rate. You can deduct the interest and that will reduce your taxes while you are working.In summary, your former 401khas now been rolled to an IRA, so you should refer to it as an IRA. You can start contributing to thecompany 401k plan when you go back and it will not affect your 72t. I have made some assumptions here, so if any are incorrect, let us know.It may be worthwhile to sit down with a planner to help you deal with these options and the planner can dig deeper into your situation than we can here.2011-03-06 18:17, By: Alan S., IP: []

L3: returning to work after 72t has startedWell for better or worse, at this moment in time, all my funds are still in the same account I had when I was working so when I say my 401k, I mean that same account and I never expected that there would be an opportunity to add to the same account later as what might be possible now. And yes, my 72t is set up and being withdrawn annually from that same account. I am pretty certain when I return to work that any new contribututions will go to the same on the options you mentioned:1) last distribution was 8 months ago (it’s an annual withdrawal)so no ability to roll it back2) this would work as I can stop the distribution and pay the penalty on what I took last year or take it later in the year if the job doesn’t work out again3) if I now roll my current funds to an IRA I can probabaly contribute the max to my “new” 401k as that is exactly what I intendedto do when I returned to work(I just didn’t want to move my funds at this time from my current account which is what caused me to ask the questions in the first place)4) I don’t wish to lower my distribution as I don’t see 5 more years of working, just enough to pay off my mortgage5) lastly, paying off my mortgage was the one thing I had not accomplished that I should have done before I retired. Had it been completely in my control (my retirement that is), I would have worked only long enough to pay this off as without my mortgage, financially in retirement would be smooth sailing but right now since I still have the mortgage, it eats up way too much of my retirement funds and I can’t sell until the real estate market comes back at least a little bit which right now is a 8 to 10 year out window (in my opinion).I did have one more thought…….if I stop my current distribution, pay the penalty, work for a year or so and then start a new distribution, can I do so without the 72t parameters as I would now be retiring after age 55?So, thats my story, feel free to voice any additional concerns and comments and yes, my financial planner and I will meet shortly but I wanted to post here first just to be certain I had thought thru all the possibilities2011-03-06 23:28, By: Thought I was Retired!, IP: []

L4: returning to work after 72t has startedWITHOUT FIGURES, IT IS DIFFICULT TO GIVE YOU INFORMED PROFESSIONAL ADVICE.However, my gut feeling is that it might make sense to proceed as follows :1. Stop any distributions in 2011, at least until Dec., to see ifworking works out. If it doesn’t, then you can still take the balance of your 2011 distribution, and continue your 401K SEPP 72-T.2. If working does work out, then pay the 10% penalty on the 2 years of annual distributions that you took. And “bust” your paln by not atking any (more) 2011 distributions. This way, at any time in the future you can start another SEPP 72-T plan.3. If things work out accordingly, you can re=retire in the year that you become 55, and take whatever amounts that you want/need, assuming that your employer will allow you to take partial distributions after you “separate from service. This will avoid any required distributions between 55 and 59 1/2, and avoid any 10% penalties on those distributions.This is called PLANNING.2011-03-06 23:51, By: dlzallestaxes, IP: []

L4: returning to work after 72t has startedTo clarify your point 3 – since you are using your 401k to fund your 72t plan, you cannot roll that balance to an IRA and continue the plan. Rolling to a different type of retirement plan will immediately bust your current plan. So will contributing new money to it.Another potential concern is that certain 401k plans include profit sharing contributions EVEN WHEN you have opted not to defer salary into the plan. These contributions to your current 401k would also bust your plan, and if the plan contains such provisions, it may be difficult to opt out of those contributions. Different treatment for some employees, even when the treatment is restrictive might violate provisions of Sec 401. Note that IF you decide to bust your plan as of 12/31/2010, there may be certain penalty exceptions that would shield some of your 2009 and 2010 distributions from penalty. But these exceptions DIFFER from those that apply to IRA accounts in some areas, so check Sec 72t to see what other exceptions may apply besides the SEPP exception.2011-03-07 03:43, By: Alan S., IP: []

L5: returning to work after 72t has startedThank you all for the advice, it gives me enough I think to have a good conversation with my financial folks just to ensure all the bases are covered and I can make a new decision going forward.2011-03-07 11:52, By: Thought I was Retired!, IP: []