to 72t or not
L1: to 72t or notI retired from my job in may of 08 and turned 57 in March of this year.In preparation for retirement income I calculated with my advisor my income for each year using the 72t calculations for August of last year and withdrew that amount in October of 08.I asked my advisor when I should recieve my next payment and he said the paperwork was not processed.My question is should I start my 72t which I’m sure I still can or since I only have a couple of years to go to reach 59 1/2 should I just take the withdrawls and accept the penalties.The advisor is not totally at fault because I was undecided on the 72t and there was some miscommunication between us2009-08-07 02:08, By: obewan, IP: [184.108.40.206]
L2: to 72t or notThe first order of business is to determine whether you have a SEPP plan started in 10/08 or not. I do not know what the advisor means by “not processed” but there is no “process” requirement. You must have a valid calculation as of 10/08 and either have taken out 25% of that annual calculation or the full amount between Oct and year end. If you did, then you have a valid SEPP and generally need to distribute that same amount this year before year end. If the SEPP is valid, the plan runs until Oct, 2013. If not, then you need to decide whether to start a plan now or try to get through 2 years without incurring too much in the way of penalized distributions. What is the status of your 2008 tax return, on extension? And was your 2008 calculation correct using the appropriate account balance, age and interest rate for Oct, 08?2009-08-07 03:00, By: Alan S., IP: [220.127.116.11]
L3: to 72t or notLet me follow up with Alan’s comments with a few more questions.
1. What does your advisor mean that the paperwork was “not processed?” In order to withdraw funds from an IRA you need to “process” withdrawal paperwork to instruct the custodian how much to withdraw and whether or not to withhold taxes. The form will also ask what type of withdrawal is being processed. Is this a “Normal” withdrawal for over age 59.5, or an “Early” withdrawal and what, if any, is the exception reasonfor the early withdrawal? The form will also ask if this is a 72(t) withdrawal or not. Get out your copies of the IRA Custodian’spaperwork to determine what was established. If you do not have copies of this paperwork, go see your advisor and get copies, especially the paperwork showing his calculations for the 72(t) distribution amount and the distribution methodology used.
Now there may be one exception to needing paperwork for an IRA withdrawal I have just described. Some IRA custodians will allow distributions based on a phone call from either you or your advisor but the amount is restricted to usually 10% of the account value, and may be limited to once per year. But even if this method is used, the same withdrawal question must be answered.Find out what your advisor did.
2. As Alan indicated you may or may not have filed you tax return for 2008 at this time, but you must have received an IRS Form 1099-R from the custodian for the withdrawal. What is the withdrawal code, probably 1 but may be 2, on this form? If you have filed your taxes and reported the distribution with the 72(t) exception, then I would say that you do have a SEPP Plan. Now whether your SEPP Plan is “compliant” is another question and we have not received enough information to confirm that status. If you have NOT filed your taxes for 2008, then you may have the option to either claim the 72(t) exception or simply pay the penalty for early distribution.
If you will answer these questions we will have a better idea of exactly what your situation really is.
Jim2009-08-07 13:38, By: Jim, IP: [18.104.22.168]
L4: to 72t or notLet me expand on Alan and Jim’s responses :
1. How many IRA accounts di you have at 6/30 thru 9/30/3008 ? ( Probably the same ones on each date.) Any of those dates are viable alternative dates and values t use.
2. What were the balances in each account at each date ? You can use all of your IRAs, or only some of the accounts, but it must be the entire balance of any account since we are backing into the calculation.
3. What is your date of birth ? Your age as of 12/31/2008 will be used i the calculation.
4. How much do you (and your spouse) have in non-retirement assets that you could use to get to 59 1/2 ?
5. Do you own a home, or any other property ? If so, what is its current fair market value, and any mortgage on it ? You might be able to use a home equity loan or line of credit until you are 59 1/2.
6. How much did you atke from your IRA(s) dring 2008, and when ? As Alan said, a SEPP 72-T plan, if you in fact had/have one, allows only 2 withdrawal amounts in the first CALENDAR YEAR — the full annual dcistribution per the formula calculation, or a prorated amount based upon when you take the first distribution. In your case, if you took your first distribution in Oct 2008, then your alternate amount would be 3/12 ( 25%) of the annual allowabe amount.
7. How much money do you NEED exah year to supplement your other income and cash flow from non-retirement sources ?
8. What do you need the money for ? Thereare certain exceptions to teh 10% penalty rules that might qualify for withdrawls without the penalty.
All of this information is needed if you want an intelligent response to your situation.
2009-08-07 20:09, By: dlzallestaxes, IP: [22.214.171.124]