starting 72t

L1: starting 72tJust wondering if you see any problems ifI make a lump sum withdrawal from my IRA to pay off a car then start 72t after my distribution. I would then take the new account value to use for the calculation but are there any other issues to address?
Thanks!2007-05-10 09:05, By: Tara, IP: [216.153.167.67]

L2: starting 72tIf you are under 59 1/2, you will be subject to 10% penalty on your “early distributions”, in addition to the federal (and possible state) income taxes on these withdrawals. It is rarely a good idea to take early, or even normal, distributions from IRAs or retirement plans to pay off car loans.2007-05-10 09:17, By: dlzallestaxes, IP: [151.197.35.124]

L2: starting 72tYou may not need to do that. Two alternatives to consider under which you can do the math:
1) We”re nearing mid year. If you start your 72t in July, you can pro rate your first year, but you can also take a full year”s distribution. If you took the full year, would it be enough to pay off the car? If so, then you are on a “pay as you go” basis from there until the 72t ends.
2) Living costs rise constantly, and many people find they need extra funds later on in the 72t plan, particularly if the plan must last over 5 years. If you paid off the car loan 50% this year and 50% in January from the 72t amount, then you will have balanced the future increase in living costs against the up front payoff costs, and your fixed amount might turn out to be about right.
Of course, both of these depend on just how much the payoff is and your projected 72t needs. That”s why I said you need to do the math to test out both the above scenarios to see if one of them might work.
2007-05-10 16:17, By: Alan S., IP: [24.116.66.98]