I have about 20 months left on an overseas employment contract. I'm 40, married with two kids 9 and 7.
Our plan is to return to our home in the upper midwest after my job is done overseas. I'm considering setting up a 72(t) withdrawal when we return and want some feedback on pros and cons.
I receive a military pension w/ VA disability. By 2019, this will total $63,600/year (adjustable to inflation each year like SS) of which $20,500 is federally taxable income . Our tax deferred accounts total around $500K. Taxable investments around $100,000. The 72(t) calculators tell me with a reasonable interest rate of 3.4%, I could withdraw about $22,000/year until 60 with an ending balance of $359,000.
If I do this, my monthly cash flow would look something like this:
$5300 military/VA pension = $63,600 annually
$1866 --IRA withdrawal = $22,392 annually
$350--dividends from taxable investments = $4200 annually
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$7516 cash flow/month or $90,192/year annually
Taxes would look something like this (I hope)
$20,500 federally taxable pension
$22,392 IRA 72t
$4200 dividends
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$47,092 taxable income
-$24,000 standard deduction
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23,092= $2309 in tax
$2309 in child tax credits
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$0 federal tax owed
We're pretty frugal so in all likelihood, we won't spend $7500/month during most months, but we travel a fair bit and want the flexibility to spend more if we want. I was looking at a Roth conversion ladder, but I don't see a real advantage over doing a 72(t) with my tax situation. I suppose doing the Roth conversion would let me accumulate a much bigger tax free stash into my 60's, but I don't see much fun in that. I do have some hesitations since the 72t isn't reversible and I definitely wouldn't start it in a bear market, but market conditions can change quickly as we all know. What should I do with the excess cash flow? Put it into 529 or back into taxable investments?