rule of 55 and 72t in same year

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L1: rule of 55 and 72t in same year
I will be 55 on nov. 26 2018. Iplan to retire on dec. 3rd 2018. I wont get my money till feb. 2019 at this time can I use the rule of 55 and take a lump sum andthen put the rest into a 72t? is this allowed in the same year? If I start the 72t in feb of 2019 willmy last payment be on feb of 2023?
2018-10-19 19:04, By: Max, IP: []

L2: rule of 55 and 72t in same year
You did not mention if this is a pension lump sum, or a 401-K distribution.
I believe that you must retire and get the 1st distribution in the same calendar year for a 401-K 55 rule.
By the way, you could have retired at any time in the calendar year that you WILL BECOME 55 to be eligible under this 401-K rule, so you could have retired last Jan thru now.
Also, the distribution from a 401-K does not have to be a lump sum, and rarely would you want all of that income in a single tax year.
If you are getting a “lump sum”, how is there going to be anything left for a SEPP 72-T ?
Do you mean that you plan to take your entire pension or 401-K, and roll it over to an IRA, and then set up a SEPP 72-T for the next 5 years (60 months) ?
What are your needs, and what are you really planning to do ?
2018-10-19 19:18, By: dlzallestaxes, IP: []

L3: rule of 55 and 72t in same year
This would be from a 401A. I would like to take between 50 and 100 k using the rule of 55 and then put the remainder in a ira I already have set upfrom a previous 401k. this balance I would set up a 72t with
2018-10-19 19:28, By: Max, IP: []

L4: rule of 55 and 72t in same year
I am not knowledgeable about 401-A plans. I did do a google search, and it appears that usually there is a 10% early distribution penalty for 401-A plan withdrawals, while tose from 401-K plans are not subject to them.
I suggest that you double-check this with your tax preparer, financial advisor, and/or your 401-A plan administrator.
How much is in your plan ? You might be able to roll it all over electronically to a separate IRA for your SEPP 72-T, and possibly it is large enough for you to take the ANNUAL calculated amount in 2018, and then the 2019 ANNUAL distribution all in January, or at least up to the amount you need “now”, and the rest thruout 2019, or not again until 2020.
2018-10-19 19:49, By: dlzallestaxes, IP: []

L5: rule of 55 and 72t in same year
Yes my 401a does qualify for the rule of 55 and I cant do anything until 2019.I was really looking to see if you could use both the rule of 55 and set up a 72t in the same year without being subject to the 10% penalty
2018-10-19 20:06, By: Max, IP: []

L6: rule of 55 and 72t in same year
Your 401a plan qualifies for the age 55 separation exception, and therefore you would not need a 72t plan if the plan allows you to take flexible distributions each year until 59.5. If the plan restricts your distributions and you cannot work with those restrictions, then you would normally do a direct rollover to an IRA (after taking a one time distribution using the age 55 exception). Then you would start a 72t plan using the IRA as you have more control with an IRA SEPP than for an employer plan.
As for your question, if you took a penalty free distribution from the 401k and the plan allowed you to take SEPP payments afterward in the same year, the plan 1099R would be coded 2 (exception) since the same exception code applies to both. However, in the following year, your distribution would be limited to the 72t amount and the code would still be 2. You need to go over this in detail with the plan and if there is anything short of complete clarity from the plan, then do the IRA rollover for the SEPP.
2018-10-19 20:50, By: Alan S, IP: []

L7: rule of 55 and 72t in same year
My plan only allows me to take a 1 time distribution, take it all out or leave it all in. That is why I want to do both the rule of 55 and the 72tin the same year
2018-10-22 15:01, By: Max, IP: []

L8: rule of 55 and 72t in same year
If you take out the entire amount or any amount you choose in a single year, you will very likely cause your marginal rate to increase. If so, that increase could offset much of the benefit of the penalty waiver. Therefore, in most such cases where you have 4.5 years left until 59.5, you would do a direct rollover to an IRA and start a 72t plan from the IRA. I thought you wanted the 72t to be taken from the employer plan, but you cannot spread this out over 5 years from the employer plan.
Of course, if the amount you need was small enough you could take a distribution from the employer plan at the same time you rolled the rest over to an IRA. That would give you some immediate penalty free money, but not enough to spike your tax rates. The rest would have to be rolled over to an IRA as part of the single distribution the plan requires and you could then start a 72t plan from your IRA. As indicated earlier it is not a good idea to use an employer plan for a 72t anyway.
2018-10-22 15:20, By: Alan S, IP: []

L9: rule of 55 and 72t in same year
As I asked you on Friday, “if you give us your figures, and what you need/want, we might be able to give you some specific ideas”.
If you do not do so, these responses will continue to be useless and meaningless. If you remember, you stated specifically that your plan would allow the 55-rule. A one-time distribution is not the 55-rule. The “55-rule” allows differing periodic payments at YOUR REQUEST whenever you want them, and for any amounts. It is NOT a “one-time lump-sum distribution”, which is not what anyone would probably want because it would drive them into a higher tax bracket, and subject them to an immediate tax bill as well, and possibly a 10% penalty for early distribution.
As I responded before, you should probably do an electronic “trustee-to-trustee transfer” to an IRA. Then set up a SEPP 72-T plan, and take a full ANNUAL distribution now for 2018, and probably again in January for 2019 if you need a big influx of cash within the next 3 months. But then you would not get any more distributions from the SEPP 72-T until January 2020. We do not know what your needs are, because you haven’t told us.
2018-10-22 15:40, By: dlzallestaxes, IP: []

L9: rule of 55 and 72t in same year
Alan S.
Your last paragraph is exactly what I would like to do. Thank you very much for responding and answering my question.
2018-10-22 15:44, By: Max, IP: []

L10: rule of 55 and 72t in same year
MAX — Your response an hour ago stated that your only options were to take it ALL out, or leave it ALL in !!!!
Was your last response referring to Alan’s posting, or to my posting, as to which approach you were going to do ?
2018-10-22 16:17, By: dlzallestaxes, IP: []

L8: rule of 55 and 72t in same year
I know, but you are not following what I am saying. If you take it all out, the entire amount will be taxable in a single year and your tax rate will be higher. That is a lump sum distribution, not a 72t (SEPP) plan. A SEPP requires you to take out the same amount every year for 5 years in your case. That is why you need to roll the plan over to an IRA if you want to set up a SEPP (72t) plan. Your penalty free distribution will then come out of the IRA account.
2018-10-22 17:50, By: Alan S, IP: []

L9: rule of 55 and 72t in same year
I want to take lets say 50kfor me when I leave my employerand then roll the rest of the money into anIRA from that Ira I would set up a 72t. I would be doing this in the beginning of 2019. does this clarify my question
2018-10-22 17:58, By: Max, IP: []

L10: rule of 55 and 72t in same year
Not completely.
Do you want the $ 50K to be taxable in 2018 or 2019 ?
If 2018, why can’t you get it in Dec when you retire ? Why do you have to wait until Feb. 2019 ?
You said you “must take it ALL or leave it ALL”. If so, then how can you take $ 50K from the plan as a “lump sum” ?
Your various statements are inconsistent.
I do not understand why you refuse to indicate how much is in your employer 401-A. You still will not indicate how much is in your IRA. You have not stated anything about your 2018 and 2019 taxable income situations, or what you want/need the money for, and if it is needed before 12/31. There are various options that we could suggest if you would be responsive to our questions.
2018-10-22 18:09, By: dlzallestaxes, IP: []

L11: rule of 55 and 72t in same year
obviously this question is much more in depth then I thought. I want to thank both of you for your responses.
2018-10-22 18:19, By: Max, IP: []

L12: rule of 55 and 72t in same year
Dallas and Alan help me I took rule 55. I left my money in my company sponsored 401(k) I’m taking out any amount I want penalty free until I’m 591/2 then gonna roll it over when I’m 59 1/2 .I am now 57 1/2
2018-11-06 15:56, By: Eman, IP: [2600:1700:6890:7260:dd49:3440:96fb:5739]