Starting a 72(t) for 2010

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L1: Starting a 72(t) for 2010I am going through a divorce at this time. I am unemployed for about 1 year. I will not have enough cash to keep surviving because most of my money is in my IRA after dividing everything. I have 2 rollover IRAs and 1 traditional IRA for myself. My question is one of the rollover IRAs is about 270K of which I would want to use for the 72(t) and my former employer could still be making one more contribution for their % share to my old 401K that then goes to this IRA I am speaking of. Do I need to create a new designated rollover IRA to use for the SEPP with Vanguard so no more funds get added to this IRA? Also, if I use the calculatoron yourwebsite, is this good for IRS regulations of the 72(t)? What do I need to keep for records how I established the amount other than the IRS form 5329?? when I file my taxes? Thanks for your help. 2010-01-12 21:37, By: Minnesota, IP: []
L2: Starting a 72(t) for 2010You are on the right track. By direct transfer create a new IRA from the funds in the rollover IRA that might receive the contribution. Leave only a small amount such as 1,000 in the original rollover IRA. That IRA will not be part of your SEPP plan and can receive the final rollover without affecting your plan. Later, you can use this IRA as an emergency for any extra expenses you need without disturbing your SEPP.The calculators on this site fully comply with IRS Regs. Use the SEPP Sample Form on one of the tabs above to document your calculations and keep this form in case the IRS ever inquires. You could check your math with another site if you wish or with Vanguard if their site offers a calculator. Be sure you understand which interest rates you can use, etc.The 5329 is only used to change the distribution code on the 1099R to show the exception because Vanguard and several others will not offer you the exception code on the 1099R. When you file your taxes, the 5329 is the only form you will need.It is good that all the assets from the settlement have been transferred now, so you will not have to worry about the divorce settlement busting your plan. Starting the SEPP prior to a divorce presents some real problems in maintaining the validity of the plan.Note that for your first year you can take the full annual distribution or a pro rated amount by the month. If you set up monthly distributions, use a date early in the month rather than a month end date to allow time for corrections in December if you need to make them. If you get ajob later, you can make the one time swithch to the RMD method to reduce the amount of your SEPP distributions and preserve assets in your IRAs.2010-01-13 22:55, By: Alan S., IP: []

L2: Starting a 72(t) for 2010Minn:The only thing I would add to Alan’s post is to make sure that there is no possibility of aclaim by the eventual ex-wife against the IRA that you plan to use to start the 72t. Ifthe divorce is final, that would give you some degree of comfort, but until then, I would assume it could always come into play, and I believe it is not easy to “split” an IRA on which a 72t plan is already active without generating penalties on your 72t, but I could be wrong. Ken2010-01-14 17:03, By: Ken, IP: []

L3: Starting a 72(t) for 2010Thank you Alan and Ken for all of the information. I really appreciate it. I have one other question – When I set aside an amount allocated to the 72(t), does the account still make money or lose moneyfrom the investment perspective with Vanguard or is that not legal to meet the requirements of the 72(t)? Does the money just sit there for the 5 years or 59.5 years old until the 72(t) is over?2010-01-18 21:21, By: Minnesota, IP: []

L4: Starting a 72(t) for 2010Gains/losses will continue. Your IRA will contnueto be an investment based on your objectives. Whether it makes gains or losses will depend on the market and your investment choices. The only real difference is that you will also be taking distributions2010-01-18 21:44, By: Gfw, IP: []