Understanding the 72t

L1: Understanding the 72tJust found this site today, it’s great. I am rolling over my TSP account (Govt 401k) into an IRA account at our local Scottrade. I have taken my current balance, used a few of the calculators online to come up with an annual amount for withdrawal. It comes out to a bit over $27,000.00 per year. This year I plan to take the entire amount out in one sum, in December. The following years I would like to take out a monthly amount equal to the annual sum of $27,000.00. I used a mid-term rate from one of the two previous months prior to the month that I will take the withdrawal. Is this the last time I need to calculate my yearly withdrawal? Will it stay at $27,000.00 for the next 9 years?Thanks very much for any response 2008-11-10 15:54, By: sctdan, IP: [70.181.252.192]
L2: Understanding the 72tFirst, a few technical points:1. The TSP is a 401(a) and not a 401(k). When you complete the Rollover IRA paperwork with the new custodian, be sure to use the “401(a)” box as the source account type. 2.TSP only wants their Form 70 WITHOUT the company specific acceptance letter. When you send or take the paperwork to the Scottrade Office, explain exactly what they should do to complete TSP Form 70. They should FAX the two pages to Birmingham and NOTHING ELSE! The instructions are very specific about what to do, and it’s really simple. Processors at the various custodians have about a 100% track record of screwing up one of the simplest transfers to process. Once they’ve got your paperwork, follow-up with the TSP office to check progress on the transfer, and to be sure they only receive the two pages of Form 70.Now to your other questions: If you do not set up your SEPP Plan for “annual recalculation,” then you only need the initial calculation for the annual distribution amount. However, if you initially set up for “annual recalculation,” then you have to do a complete recalculation each year until completion. Unless you set up for the “RMD Method” initially (dumb decision if you do), then you have the ont-time option to switch to RMD if the market value of your IRA tanks and you need to reduce the distribution amount to help save the IRA. You can start out with an annual distribution for the first year, then change to monthly or quarterly or semi-annually or back again in any previous year. Check with your custodian to be sure they are on the same page with this. Some of them don’t understand and will give you a load of grief about changes. You might need to consider another custodian that will be flexible with you, if Scottrade won’t work with you on the changing distribution methods.Jim2008-11-10 16:19, By: jim, IP: [70.167.81.119]

L2: Understanding the 72tYes, there is no requirement for you to undertake further calculations unless:1) You initiate a recalculated plan that will require a new calculation every year based on a new account balance, current interest rates, and current ages, all done using a consistent date certain. Since there are 3 variables, done each year for 9 years, this equals 24 additional chances to mess upin exchange for having the annual distribution rise or fall an unpredictable amount. This does not strike me as worth the added risk and inquiry potential from the IRS.2) You make the one time switch to the RMD method, which will usually result in a substantial reduction from the initial amount calculated under the amortization or annuitization methods.3) Your balance drops to a point where 27,000 would drain the account. You are allowed to take just the remaining balance without busting the plan. This is NOT a pleasant option.The vast majority of people will therefore just do the calculation one time, and henceforth only have to be concerned with accurate execution of the annual distribution. In the first year, you choice is either pro rate or full annual, and you are opting for the full annual. You will also have choices in the year you turn 59.5, which are to take nothing, the pro rated amount or the full annual amount prior to the day you reach 59.5. After 59.5, the plan is completed and you can take any distribution amount you wish.2008-11-10 16:32, By: alan+s., IP: [24.116.165.60]

L2: Understanding the 72tI would like to thank both respondents, it has been very helpful.Dan2008-11-11 09:23, By: sctdan, IP: [70.181.252.192]

L2: Understanding the 72tI would like to thank both respondents, it has been very helpful.Dan2008-11-11 09:23, By: sctdan, IP: [70.181.252.192]