Steps for 72 (t) Transaction

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L1: Steps for 72 (t) TransactionI am 56.5 years old and have worked for my current employer for 24 years. I have $560K in my 401(k) and my wife and I have additional IRAs and one rollover IRA for a total of $900K.I am thinking of early retirement and would like to know what steps are necessary to accomplish this. My guess is:1) Terminate employment with my current employer2) Roll over the 401(k) funds into an IRA3) Perform the calculations IAW IRS guidelines and document everything4) Take the minimum required distribution for five years or 59.5, whichever is laterCan I take more than the minimum each year?I assume my wife (not working) can do the same for additional income?2009-10-21 14:05, By: Roger the Artful Dodger, IP: []
L2: Steps for 72 (t) Transaction
Congrats on your excellent preparation for retirement!

Before you do anything else, please check with your employer to see if your 401k plan allows you to take partial distributions once you have separated from service. If it does, then you will not need a 72t plan and can simply take money from your 401k plan as needed for retirement living expenses. There is no 10% penalty for doing this IF your plan allows it. The law provides this option but does not require it, so some plans offer partial distributions and some don’t. Your HR department should be able to fill you in on this. You will owe income tax on any pre-tax contributions to your plan when it is withdrawn, however.

Another aspect of this is whether or not you have any highly appreciated company stock in your 401k plan. If you do, there is a very beneficial way of handling this that can save a great deal on taxes. Do a web search for the details of Net Unrealized Appreciation or NUA.

If you do end up with a 72t plan, you cannot take more OR less than the amount calculated by 1 of the 3 IRS-approved calculation methods. It is possible to do a 1-time switch from the annuitized or amortized calculation methods to the RMD method, however. People sometimes do this to reduce their distribution amounts, such as when their IRA has suffered large losses and they do not wish to deplete their account. This is a 1-time option, however, and cannot be undone later.

If your wife has her own IRA, then yes she can also set up a 72t plan for penalty-free withdrawals. IRAs are separate, so whatever is done with one IRA does not affect the others unless they have been used as “an IRA universe” to calculate a single 72t plan distribution from 2 or more IRAs. I don’t think that husband and wife IRAs can be combined in this way but an individual’s IRAs can.
2009-10-21 17:15, By: Ed_B, IP: []

L3: Steps for 72 (t) TransactionExcellent thorough response.1 additional point. Use the “reverse calculator” on this website to determine the least amount that you have to commit to your SEPP 72-T, or your wife for hers. ( Each spouse’s universe is separate.)This way you will have separate funds available in case of emergency, or to start using at 59 1/2 without the encumbrance of being locked into the 5-year term.2009-10-21 17:32, By: dlzallestaxes, IP: []

L4: Steps for 72 (t) TransactionExcellent point, Dlz. There is no reason to put more money into an IRA for a 72t plan than the plan needs to produce the required distributions. All other money can either remain in the 401k plan or be put into a separate IRA. Unexpected emergencies do occur and having the resources available to meet them willmaintain goodfinancial flexibility.2009-10-21 23:03, By: Ed_B, IP: []

L3: Steps for 72 (t) TransactionMy plan is with the Raytheon Company and they do not allow partial distributions after separation of service. They do allow you to take company contributions at any time.2009-10-22 14:35, By: roger the artful dodger, IP: []

L4: Steps for 72 (t) TransactionYou should ask them for your NUA cost basis to determine if it would be advantageous for you to use this tax-saving and flexible provision, and be able to avoid setting up a SEPP 72-T plan which would be very restrictive until the later of 59 1/2 or 5 years.2009-10-22 16:21, By: dlzallestaxes, IP: []

L2: Steps for 72 (t) TransactionI just got off the phone from the Irs. I retired in 2008 and receive a monthly set income using the T2 form. This allows me a monthly set income without paying a 10% penalty. I am trying to get an additonal amount because I am in dept up to my ears but they say no unless I want to pay a 10% penalty going all the way back to my original retirement date. 2009-10-22 15:07, By: eleo, IP: []

L3: Steps for 72 (t) Transactioneleo… I’m guessing that by T2 form your are referring to a 72(t) or SEPP plan. If yes,they are absolutely right. Take any more and you will bust the plan unless you can meet one of the other exceptions. Check out this page for other exceptions.2009-10-22 15:14, By: Gfw, IP: []

L3: Steps for 72 (t) Transactioneleo We cannot offer you much advice if you don’t give us your basic info, like:Date of BirthWorking or notTypes of retirement accounts/plansAmount in each of your retirement accounts2009-10-22 16:24, By: dlzallestaxes, IP: []

L4: Steps for 72 (t) TransactionI think we now have two unresolved posters, since eleo does not appear to be the original poster. As more info becomes available it is easy to get confused. eleo should start a new post and leave this one to the OP.2009-10-23 03:50, By: Alan S., IP: []