Author Topic: Simple 72(t) question for you (not for me ;)  (Read 674 times)

Rollin

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Simple 72(t) question for you (not for me ;)
« on: September 03, 2017, 11:39:06 AM »
I am missing something in the 72t discussions. Here is the scenario:

57 yo wants to start 72t payments, so the 5 year time frame would be longer than reaching 59.5.

Does this essentially prohibit taking money from the IRA once this person reaches 59.5? In other words, are you locked into the 5 equal payments until age 62 in this case, and not access remaining funds without penalty?

"If you do not stick to your 72(t) payment plan, or if you modify the payments, they will no longer qualify for the exemption from the 10% penalty. Here is some even worse news; the 10% will be reinstated retroactively to all the distributions you have taken prior to age 59."

I see that you can create another IRA to avoid this, however this particular IRA only has $20K in it, so it would not yield very high SEPPs. I also read that once you start this SEPP plan you cannot contribute to the IRA. True?
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protostache

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Re: Simple 72(t) question for you (not for me ;)
« Reply #1 on: September 03, 2017, 05:36:46 PM »
Quote
The substantially equal period payments must generally continue for at least five full years, or if later, until age 59 . For example, if you began taking payments at age 56 on December 1, 2006, you may not take a different distribution or alter the amount of the payment until December 1, 2011, even though your fifth payment was taken on December 1, 2010.

https://www.irs.gov/retirement-plans/retirement-plans-faqs-regarding-substantially-equal-periodic-payments#10

Rollin

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Re: Simple 72(t) question for you (not for me ;)
« Reply #2 on: September 04, 2017, 02:55:59 PM »
Not sure that answers the question.
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secondcor521

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Re: Simple 72(t) question for you (not for me ;)
« Reply #3 on: September 04, 2017, 04:41:01 PM »
Does this essentially prohibit taking money from the IRA once this person reaches 59.5? In other words, are you locked into the 5 equal payments until age 62 in this case, and not access remaining funds without penalty?
...

I also read that once you start this SEPP plan you cannot contribute to the IRA. True?

Yes, Yes, and True.

The only way I  know of to get around the situation you're describing is to split the IRA and do an SEPP on one IRA and use the other for post-59.5 withdrawals.  But it sounds like you don't want to do that because then the SEPP withdrawals would be too low.
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Rollin

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Re: Simple 72(t) question for you (not for me ;)
« Reply #4 on: September 04, 2017, 05:24:44 PM »
Thank you 521. Yes, I'd like to get at this IRA to bridge the gap post-FIRE, until I reach SS age. I don't need it right now, but was looking at options should I have an emergency.
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moof

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Re: Simple 72(t) question for you (not for me ;)
« Reply #5 on: September 05, 2017, 06:40:46 PM »
...
I see that you can create another IRA to avoid this, however this particular IRA only has $20K in it, so it would not yield very high SEPPs. I also read that once you start this SEPP plan you cannot contribute to the IRA. True?

I think you missed something here.

Step 1)  Big IRA stache.

Step 2)  Move part of the IRA to a newly opened rollover-IRA (one SEPP-IRA, one Emergency-IRA), basically enough balance to make you feel comfortable for emergencies and any shortfalls from SEPP'ing the remaining original balance.  SEPP is per IRA account, so you can SEPP an IRA, but then contribute to another IRA in your own name without issues.  You can SEPP one IRA, and take the penalty, or do Roth conversions on a different one.

Step 3)  SEPP the SEPP-IRA to create some base income to mostly or completely cover your needs.

Step 4)  Take the 10% penalty for any extra you need (emergency or otherwise) on withdrawals from the Emergency-IRA.

Step 5)  At age 62 work with an accountant before messing with the SEPP-IRA, as you need to cover the full 60 months carefully.  After that you can re-merge the accounts to reduce paperwork related hassles.
« Last Edit: September 06, 2017, 10:11:52 AM by moof »

Rollin

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Re: Simple 72(t) question for you (not for me ;)
« Reply #6 on: September 06, 2017, 04:42:39 AM »
Thanks for that Moof, as the strategy you outlined helps clarify for me.
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