Starting a 72t

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L1: Starting a 72tI am 55 and husband is 56. My husband lost his job and our CD IRA is coming up in a few months and we want to start the 72t regular payments. Do u suggest that we hire someone or try to get that special letter from the IRS?
This is a great forum. I just learned that the 72t existed from you.2011-06-05 12:22, By: Lily, IP: []

L2: Starting a 72tIf you are talking about a PLR ( Private Letter Ruling), forget it because it costs $ 10,000 paid to IRS plus $ 7,500- $ 10,000 paid to a tax professional.
You may be able to do it yourself if you get the book available thru this website, or using a tax practitioner should not cost you more than $ 500-$1,000.
You should do some tax planning because these distributions will be added to your husband’s salary, and any severence or unemployment benefits in 2011. It would probably make sense to try to wait until January 2012 to start your SEPP 72-T if you can afford to wait because you will probably be in a lower tax bracket in 2012 vs 2011.
However, your comment ” OUR” CD IRA is confusing because there is no such thing as a joint IRA.
By the way, does he have a 401-K ? If so, then he can take distributions without a SEPP 72-T and without any 10% penalty, if the plan allows such withdrawals.
Did he have a pension or retirement plan ?
Also, he is probably eligible to take distributions to pay your family health unsurance premiums without any 10% penalty.
These items are the types of exceptions that a tax practitioner can help you with, which the book might not.2011-06-05 20:37, By: dlzallestaxes, IP: []

L3: Starting a 72tThank u for the information on the private letter. He has an IRA CD that will be coming due in a few months. Our income has gone down drastically so I think it will be okay to just do it this year. We will probably put it in money market or regular savings if its possible and take the regular deductions for five years.2011-06-06 01:43, By: Lily, IP: []

L4: Starting a 72tLily,
If your last post is still referring to setting up a 72t using that IRA, you need to do some research & reading first, because it does not sound like you have a full understanding of the rules and the calculations involved, etc. Do you know which Max Interest rate you can use, based on the month you start?Do you know not to move the money after you start the 72t. Give us some details, (all factors and the payment result you get.. usingthe calculator on this website for starters) so we can feel more comfortable that you know how to do this before you continue.
Ken2011-06-06 02:44, By: Ken, IP: []

L5: Starting a 72tHi. First, let me thank you for your assistance. I made the calculation based on 20K for a 56 year old at 2.80 percent. Calculator estimated around $1k for five years which is exactly what we need for that time.
We dohave another IRA account as backup in case we need money at 59 1/2 for an emergency.
I do understand once the72t is done it cannot be changed for five years. Not really sure of the interest rate. We would be withdrawing starting in October. Any suggestion of how to withdraw the monryor anything else would be greatly appreciated!2011-06-06 02:58, By: Lily, IP: []

L6: Starting a 72tI do not think that you understand enough to start a SEPP 72-T.
If you are only talking about needing to withdraw $ 1,000 per year, then after even a 15% federal income tax you would have only $ 850 available to spend.
If you did not have a SEPP 72-T, you would have the same $ 150 federal income tax,plus the penalty would be $ 100 ( 10% of the $ 1,000 distribution).
If you started a SEPP 72-T plan, and had to bust it within the 5-years, you would end up paying the 10% on all distributions cumulatively from the beginning.
Based on what you have told us, I would recommend not setting up a SEPP 72-T. Take whatever you need each year, plus enough to pay the taxes and penalty, until your husband is 59 1/2. After that, there is no 10% penalty, and no restrictions on how much you can take between 59 1/2 and 61+ ( which you would be restricted to under a SEPP 72-T plan).2011-06-06 04:40, By: dlzallestaxes, IP: []

L7: Starting a 72tWould i not have to pay a 15% federal income tax if i took the money on my own also? (Our incomedoes not reach 21,000 a year.)2011-06-06 13:34, By: Lily, IP: []

L8: Starting a 72tIt depends what constitutes your income.

1. Taxable income of $ 16,750 or less is taxed at 10%.

2. The STANDARD DEDUCTION (in place of itemized deductions) is $ 11,400 for a married couple.

3. The PERSONAL EXEMPTIONS for a married couple is an additional $ 7,300.

4. Therefore, if you receive $ 35,450 in income, you will have -0- federal income tax.

5. If you have “Qualified” Dividends and/or Long-Term Capital Gains while your JOINT TAXABLE INCOME is less than $ 68,000 ( which is $ 86,700 of GROSS INCOME), then that Dividend and Capital Gain income is not even subject to federal income taxes.

6. If your income is a s low as you stated, then there might not be any federal income tax, but you would still have the 10% penalty.

I suggest that you meet with a tax professional to work out a projection of your tax situation for 2011 and 2012.2011-06-06 22:00, By: dlzallestaxes, IP: []

L9: Starting a 72tAgain, you are a wealth of information. What do u think in your opinion of fixed annuities for retirement?2011-06-06 23:46, By: Lil, IP: []

L10: Starting a 72tWhat do u think in your opinion of fixed annuities for retirement?Just my opinion… not much. You get a lot of promises, but make sure that you check the AM Best (and other ratings) – you are merely paying a fee to an insurance company for guarantees that you may not use or need.2011-06-06 23:55, By: Gfw, IP: []

L11: Starting a 72tI agree.
Also, usually you have no flexibility with annuities, and have to keep them for an extended period to avoid penalties. With your limited income and resources, I think that you need as much flexibility as possible, and do not want to be locked in to anything for long periods, not even long CDs.
In the past when it was appropriate for clients to buy CDs,before their abysmal yields, I would suggest thatthey “ladder” them, which meant to divide up your money into CDs with different terms, say 4 CDs @ $ 5,000 with 6 mo., 1 yr. 2 yr, and 3 yr. terms for example, or 1, 2, 3, and 5 year terms.
But now none of the yields on CDs are any good, and no one knows when the yields will get better. It is not an easy time to get a good return on investments.2011-06-07 13:32, By: dlzallestaxes, IP: []

L12: Starting a 72tYou guys have been so helpful. I appreciate getting the answers from someone that does not have an interest. Almost did an annuity but got turned off by salesman’s sales pitch. Whenever u hear “trust me” i get kind of leery. Would u suggest then into a money market?2011-06-07 18:35, By: Lily, IP: []

L13: Starting a 72tAt this time, yes.2011-06-07 21:41, By: dlzallestaxes, IP: []

L14: Starting a 72tWhen we are figuring out how much we can withdraw, do we figure out the full amount ofboth IRA accounts?
The reason i am asking is that I would only be withdrawing from one IRa account. The second smaller account would stay in a CD.
However, when figuring out the 72swithdrawl do i take both amounts in mind?2011-06-08 15:53, By: Lily, IP: []

L15: Starting a 72tIt is your choice based upon:
1.How much you need
2. The amount calculated by the formula for either account, or if both are needed in the SEPP 72-T UNIVERSE to accomplish #1 above
3. If you want, or need, to keep some set aside in a separate IRA for emergencies2011-06-08 16:14, By: dlzallestaxes, IP: []

L16: Starting a 72tSorry that Iask so much! In other words, if i am not touching the second IRA then it cannot be taken into consideration when estimating the withdrawl amount or it can be?2011-06-08 16:34, By: Lily, IP: []

L17: Starting a 72tFrom the questions that you are asking, you may want to spend some time reading before you do anything. Start with our planning pointers and the SEPP FAQ. When you finish those, you may want to order Bill’s book. If you don’t want to self-educate, you may want to just hire someone to walk you through the process.
2011-06-08 16:52, By: Gfw, IP: []

L18: Starting a 72tThank u! Will do.2011-06-08 17:02, By: Lily, IP: []

L17: Starting a 72tNot exactly.
If you include both IRAs in the CALCULATION, then you can take the distributions from either one of the accounts, or in total between the accounts.
If you include just 1 of the accounts in the calculation, then you can take distributions only from that account.
You are correct in trying to self-educate yourself on this subject, but you should really consider getting professional assistance. After all, you wouldn’t want to do everything yourself for medical, dental, or legal situations, so why wouldn’t you use professional assistance in an area that has its own complexities and nuances.2011-06-08 17:39, By: dlzallestaxes, IP: []

L18: Starting a 72tI am. Unfortunately I have asked my bank and gotten completely erroneous information. The supposedly IRA expert said I would be taxed . When I pointed out this was not correct she then came back and said, yes it can be done. Then she said it can doneuntil a person is 59 1/2 and then u can withdraw all of it!
The next expert wanted to sell me a variable annuity where the funds would be moved around at his will.. etc. etc. as u can see, I have had to self educate with your kind help before going out there again for more..2011-06-08 18:42, By: Lily, IP: []

L19: Starting a 72tThe IRS/Tax expert was close to correct, except he forgot the 5-year rule part that would take your husband to 61+ before he could take out all of it that is left without PENALTY, but still subject to tax.2011-06-08 19:24, By: dlzallestaxes, IP: []