Starting a 72t in July

L1: Starting a 72t in JulyIn early July 2007 the wife plans to start a 72t distribution program from her 401k. Annual, four times a year and monthly withdrawals are permissible according to the plan document. They must withold 20 % federal taxes and they will also withold state taxes at our request. She plans to take a stub payment in the first year using the account valuation as of 6/30/2007. Since the first of July is a Sunday, the earliest that we could request a withdrawal would be July 2. Can we take as a stub payment 50% of the full year amount or do we have to base the stub year amount on the date we request the payment? I know the plan has to run for five years or 59.5 which ever is longer. Also I”m planning to start a 72t withdrawal on my 401k in September 2007. Same rules for withdrawals apply. I will start mine based on the account valuation on August 30. I plan to take a stub payment also the first year and since September first is on a Saturday I cannot request a withdrawal until September 4.Can I take a stub payment valued at 1/3 of the full year amount. Hope I haven”t asked too many questions.2007-05-21 20:19, By: Rick H, IP: [148.78.243.121]
L2: Starting a 72t in JulyHello Rick:
Handling 1st year stub payments are not measured to the day & therefore should not be a concern to you. It is perfectly acceptable for your wife to measure her account as of 6/30/07 (which amount may be known immediately or might not be known for several business days or until receipt of a statement); then compute the annual distribution amount and then distribute 50% of that amount anytime in July, 2007.
Similarly, you can take your 1/3rd anytime in September, 2007.
TheBadger
wjstecker@wispertel.net
2007-05-22 05:38, By: TheBadger, IP: [72.42.67.29]

L2: Starting a 72t in JulyThat”s why it is a good idea to request payments early in the month. You are working with a pro rata factor which is some multiple of .08333, representing any# of the 12 months. However, the 1099R is issued based on the issue date of the distribution, not your received date, and this can be critical in December. By ordering early in the month, you have a great chance of ordering and receiving within the same month. If you order late in the month, you don”t know which month the check will actually be issued in. That could make your pro rate factor incorrect, which would have to be corrected by taking an additional month out or rolling back one month. Ordering early or setting up automatic withdrawals early in the month gives you plenty of time to monitor and/or correct custodian errors or misunderstandings. In fact, a good case can be made to not bother with automatic withdrawals, because you still must monitor them for accuracy.2007-05-22 15:19, By: Alan S., IP: [24.116.66.98]

L2: Starting a 72t in JulyThank you so much for the answers. Now I have a few more questions. We both plan on taking $37,500 each on a full year basis so if I understand correctly the wife could take 50% of that amount or $18,750 minus taxes and I would be able to take 1/3 or $12,500 minus taxes as stub year payments based on my original note of an early July withdrawal for the Wife and an earlySeptember withdrawal for myself. Thanks once again for the answers.
2007-05-22 18:46, By: Rick H, IP: [148.78.243.122]

L2: Starting a 72t in JulyThat”s right assuming the 37,500 is correctly calculated. Your plans are independent of each other, therefore, one of you could pro rate and the other take the full annual for the stub year if you wanted to.
Be sure the custodian fully understands the amount of the gross distribution and tax withholding because that can be a potential source of confusion. Generally, you can specify any % withholding you wish.2007-05-22 19:59, By: Alan S., IP: [24.116.66.98]

L2: Starting a 72t in JulyIt is rare that 2 individuals would have the same amount CALCULATED for their respective SEPP 72-T annual withdrawals. It appears that you decided to take the same from each of your 401-K plans. You must calculate your respective annual amounts based upon the formula or calculator on this website. Factors include your age, plan balance, interest rate assumption, etc.
If either of you is, or will be, 55 during 2007 (or older), AND SEPARATED FROM SERVICE at the company the 401-K is with, then you can withdraw any amounts, and not be subject to the 10% penalty. Also, the 5 year/59.5 provisions would not apply.
Finally, there may be estate planning reasons (or state income tax reasons) for the respective withdrawals to be different amounts.2007-05-22 20:39, By: dlzallestaxes, IP: [151.197.183.121]

L2: Starting a 72t in JulyThanks for the replys. We both left mega-corp at 52 so the age 55 exemption on 401k”swill not apply. Also we plan to adjust the interest rate usedto acheive the total return as long as the rate is less than or equal to the 120% of mid term rate. We have IRA”s, outside the funds that will be used to generate the SEPP, that can be tapped in case of emergency. We are trying to cover our bases and the amount of total annual withdrawal may vary slightly depending on the calculations and we will then adjust the half year and1/3 year stub payments accordingly. We will also notify the custodian of our plans.Thanks for all your help and please let me know if we”ve missed anything.2007-05-23 03:24, By: Rick H, IP: [148.78.243.121]

L2: Starting a 72t in JulyRick:
Since you will not qualify for the age 55 exception for your K-plan thus forcing you into running a 72(t) SEPP Plan, then you might seriously consider moving all of your and your wife”s K-plan assets into Rollover IRA accounts. By making the rollover, using the “trustee-to-trustee” transfer method,you will open up many more options that you don”t have in the K-plans.
OK, you may have low fees in the K-plan, but the IRA gives you infinite investment options that are not available if you leave the money with the company plan which will far outweigh the “low-fee” benefit. Also, the mandatory 20% tax withholding goes away and you can choose any amount between 0% and 100% tax withholding, and it can be changed very easily to any percent you need for your individual, ever changingtax situation.
Jim2007-05-23 07:02, By: Jim, IP: [24.252.195.14]

L2: Starting a 72t in JulyJim, the K-plan custodianis thru TR Price so we have access to anything they have plus they have a market option where you can utilize hundreds of other funds that are out there. The fees are minimal so staying put appears at this time to be the right thing. Thanks for your input and let me know if you think I”ve missed anything.2007-05-23 09:10, By: Rick H, IP: [148.78.243.123]

L2: Starting a 72t in JulyRick,
As dlz indicated, it is unlikely that you would get the same annual calculation from each of your 401k accounts, so we wanted to be sure we understood how you were doing the calculations. With an IRA, if you desire identical payouts for each 72t, you can do the math and partition the IRAs into appropriate account balances prior to starting the plan. But with a 401k that would be highly unlikely, even with various portability options.
Therefore, your age differences and interest rates would have to exactly offset any difference in the account balances used. The interest rate can be varied by using something less than the max permitted. Is this how you are coming up with the 37,500 for each of you, and is it a mathematical fluke or you are managing the interest rate to make the amounts equal?
2007-05-23 17:42, By: Alan S., IP: [24.116.66.98]

L2: Starting a 72t in JulyAlan S, I replied to your post yesterday but for some reason it didn”t show up. Our 401k”s are close in value but we are planning to adjust the interest rate to acheive a nearly identical distribution. After using the reverse calculator on this site and the maximum interest rate allowed, we will then adjust the interest rate. We may move any money that is in excess of the required amount before the end of the month of June to our IRA”s so as to enhance our emergency cushion. Thanks for your answers and assistance.2007-05-24 10:29, By: Rick H, IP: [148.78.243.122]