I agree that in some (many?) cases, the Roth Pipeline has advantages over SEPP, but it can play out both ways, and yeah, of course using the two together is also possible.
How would that work out exactly? If you set up 72(t) SEPPs, isn't the entire balance that you base the SEPPs on then off limits to you? Is it possible to subsequently do a Roth IRA conversion on money that you're currently receiving that 3.5% SEPP from? That seems like something the IRS would hate.
I'm actually surprised that I made that statement ("of course using the two together is also possible"), since I didn't actually know that was true, and I usually don't shoot off my mouth like that. But, now I've looked it up, and it is in fact possible! Phew!
However, it seems to be one of those things that the IRS has not given completely-definitive guidance on. They
are definitive that it's ok to do a Roth IRA conversion while doing SEPP. But their guidance assumes that you're rolling over the *entire* IRA, and then they require your SEPP withdrawals to continue from the Roth IRA. If you only do a partial rollover, it's less-clear where your SEPP withdrawal is supposed to come from. The Roth? The Traditional? A pro-rated combination of both?
Here is the legal source (jump to "Q-12"):
http://www.law.cornell.edu/cfr/text/26/1.408A-4Here is a blog from a retirement adviser describing the issues more clearly:
http://www.retirementincomevisions.com/retirement-income-visions/2010/07/considering-a-partial-72t-roth-ira-conversion-tread-lightly.htmlIf you can't, then 72(t) still isn't very attractive because you have to make an up-front decision about how much you'll be able to spend every year until you're 59.5 years old, which is a loooong time for an early retiree. You would lose all flexibility for variable expenses like a new home, or college costs, or ramping up your spending if the market goes through the roof. Lame.
Given that simultaneous SEPP and Roth conversion is allowed, you aren't giving up *all* flexibility by using SEPP, though yes, it does seem like Roth conversion allows significantly more flexibility. However, due to the 5-year seasoning period for Roth conversions, it's not like you have amazing flexibility there either. For example, should you convert $50k per year, paying more taxes than necessary each year, in order to have a significant buffer sitting in your Roth account 10 years later for a potential house purchase? Or just do $20k per year, saving on taxes, since who knows if you'll be buying a house 10 years from now?
Anyway, thanks for filtering this topic up. It's at least confirmed for me that there hasn't been enough thought given to 72(t) in our community (even by myself!), and that our ignorance is not because we've already done a complete analysis and discarded the idea, since we clearly haven't done a complete analysis. At the moment SEPP doesn't seem like too attractive of an idea, but hey, if we at least keep the idea out there as interest rates change, maybe some of the more-creative wizards amongst us will see new ways to take advantage of it.