Author Topic: Has anyone else heard of this?!  (Read 8947 times)

Chuck

  • Bristles
  • ***
  • Posts: 411
  • Age: 32
  • Location: Northern VA
Has anyone else heard of this?!
« on: March 23, 2015, 01:29:17 PM »
So, I very recently made a thread on Roth IRAs, and whether I should take money out of mine. I got some great feedback that pointed out blindspots I hadn't considered. I took my idea off the table for the moment and decided to research the issue more. While I was doing so I stumbled onto something unrelated that is potentially awesome and amazing and I want to know what you guys think of it:

So, I knew about Substantially Equal Periodic Payments from earlier discussions. In summary, they allow you to withdraw money peridoically (annually or monthly) from an IRA until you turn 59 1/2. Without penalty. It sounds like an awesome deal for early retirees, but I know of no one that is considering using them because of the three methods used to caculate your withdrawal rate... suck.

Two are hyper conservative, due to today's interest rates, and don't allow you to withdraw enough money. The third divides your account balace by your remaining life expectancy, which means you withdraw far too little to start with, and then far to much as you age.

Then I stumbled on this tidbit in the FAQ: (http://www.irs.gov/Retirement-Plans/Retirement-Plans-FAQs-regarding-Substantially-Equal-Periodic-Payments)

Quote
Are these methods the only acceptable ways of determining substantially equal periodic payments?

No. Another method may be used in a private letter ruling request, but, of course, it would be subject to individual analysis.


What if the new method I requested was "3.7% of the remaining balance, because *Trinity Study blah blah blah*"? What do you think the odds would be of getting an exception like this? Would you take this option if it was available to you?

I personally think it would be awsome to not have to worry about messing with the Roth IRA conversion ladder and having to think five years ahead...
« Last Edit: March 23, 2015, 01:33:39 PM by Chuck »

hodedofome

  • Handlebar Stache
  • *****
  • Posts: 1442
  • Age: 41
  • Location: Texas
Re: Has anyone else heard of this?!
« Reply #1 on: March 23, 2015, 01:48:07 PM »
This has been my goal since I first started investing in 2006. I guess I'll find out just how easy it is once I'm there. But yeah, having all your retirement in Roth IRAs would be pretty sweet. You'd never have to worry about income taxes again.

DoubleDown

  • Handlebar Stache
  • *****
  • Posts: 2076
Re: Has anyone else heard of this?!
« Reply #2 on: March 23, 2015, 02:00:57 PM »
That's interesting. I wonder what some successful strategies have been in the past? For example, would it make sense in your private letter to say "and because I have a paid off house plus another $200k in taxable assets plus blah blah blah." It would be good to know if there are any known strategies or secret code words to employ that always work or increase your chances. Kind of like in The Simpsons when Apu is taking the U.S. Citizenship test, and when he's giving all the complex causes for the Civil War he's told by the examiner, "Just say 'slavery'."

stuckinmn

  • Stubble
  • **
  • Posts: 109
  • Location: Minneapolis
Re: Has anyone else heard of this?!
« Reply #3 on: March 23, 2015, 02:02:26 PM »
I've done private letter rulings in my professional life and in my limited experience it is a lot more complicated than a letter that says "Dear IRS, can I please use 4%, please see attached Trinity study.  kthxbye."  I think we spent over 50K in legal and filing fees to get a fairly straightforward issue settled.

brooklynguy or seattlecyclone undoubtedly have more knowledge in this area, but that's my experience.

forummm

  • Walrus Stache
  • *******
  • Posts: 7388
  • Senior Mustachian
Re: Has anyone else heard of this?!
« Reply #4 on: March 23, 2015, 02:09:43 PM »
Based on the considerable flexibility mentioned in your other thread, and the added benefit of the SEPP, and your need for money beyond age 59.5, I don't think you really need to do much more than what's already legal.

Since you have contributions still in your Roth, you can pull them out whenever. You can pull out the amounts for you or a relative when you/they buy a house or have educational expenses. Then you can also pull out whatever amount with SEPP.

Keep in mind that the interest rate will go up a lot, so you will be able to pull out much more in the future. And once you start with that interest rate, you get to keep it for the rest of your life (until 59.5 anyway, when you can change to any amount you want to pull out) so you can strategically wait until you get to a high interest rate and then trigger your payments.

But given what a tiny amount you have in your Roth after you pull out your contributions, I think you are way overthinking this.

brooklynguy

  • Handlebar Stache
  • *****
  • Posts: 2204
  • Age: 40
Re: Has anyone else heard of this?!
« Reply #5 on: March 23, 2015, 02:23:40 PM »
I've done private letter rulings in my professional life and in my limited experience it is a lot more complicated than a letter that says "Dear IRS, can I please use 4%, please see attached Trinity study.  kthxbye."  I think we spent over 50K in legal and filing fees to get a fairly straightforward issue settled.

brooklynguy or seattlecyclone undoubtedly have more knowledge in this area, but that's my experience.

Unfortunately I don't have any more knowledge about this area than you do, but based on what I do know I would also venture to guess that it would take more than a simple letter to the IRS requesting to please use X% based on the Trinity study.

Kudos to Chuck for thinking outside the box and digging deeper into the mechanics, but in my view the flexibility of the Roth conversion pipeline still seems preferable to the rigidity of a SEPP plan (even if you could get a customized SEPP withdrawal plan approved).

Also, it made me smile that someone who can say "I've done private letter rulings in my professional life" would assume that a couple of internet amateurs like seattlecyclone (a software engineer, I believe?) and myself (a non-tax corporate lawyer) would be more knowledgeable about this subject than he is :-)

stuckinmn

  • Stubble
  • **
  • Posts: 109
  • Location: Minneapolis
Re: Has anyone else heard of this?!
« Reply #6 on: March 23, 2015, 02:42:01 PM »
Quote
Also, it made me smile that someone who can say "I've done private letter rulings in my professional life" would assume that a couple of internet amateurs like seattlecyclone (a software engineer, I believe?) and myself (a non-tax corporate lawyer) would be more knowledgeable about this subject than he is :-)

But you guys use such big words and sound so knowledgeable about tax issues.  That means you know way more than I do.

To clarify, I should have said in connection with some M&A deals I've worked on I instructed outside tax counsel to get us a private letter ruling, got an estimate and then sat back and approved the bills as they came in.  Saying "I've done private letter rulings" is a gross misstatement of my involvement in the process. 

All i know from the process is getting something in writing from the IRS that is specific to your situation is never going to be cheap or easy,at least  in my experience.  The filing fees alone were in the thousands, IIRC.

Cathy

  • Handlebar Stache
  • *****
  • Posts: 1044
Re: Has anyone else heard of this?!
« Reply #7 on: March 23, 2015, 10:26:35 PM »
Some great questions here, Chuck. I don't have any substantive thoughts on the underlying merits of your proposed substantially equal payment model, but I'll comment a bit on the administrative law aspects of this thread.

The primary authority for tax law is the Internal Revenue Code (IRC), codified in Title 26 of the United States Code (26 USC). Some provisions of the IRC provide that the Secretary of the Treasury may make regulations to supplement, modify, or clarify the general rules set out in the Code. When the Secretary acts pursuant to such a provision, the regulations made thereunder have the force of law (unless invalidated under the general principles of administrative law), and are not just "interpretations" of the statute.

For example, the wash sale statute (26 USC 1091) provides that the Secretary may make regulations (i) specifying contracts or options that are not subject to the wash sale rule, and (ii) specifying which specific identifiable shares are not deductible losses in the case of a partial wash sale. If the Secretary exercises that regulatory authority, the regulations made pursuant to that authority have the force of law, unless you can persuade a judge that the regulations are clearly outside the scope of the grant of authority in the statute. It is a difficult case to make, but it is possible for regulations to be invalid. The IRS actually publishes a Form that they require you to use for making such an allegation as part of your tax filing, Form 8275-R (Regulation Disclosure Statement).

However, in the case of the definition of the substantially equal payment regime, there is no relevant grant of regulatory authority contained in the statute. 26 USC 72(t)(1) sets out the general rule that a distribution from a qualified retirement plan is subject to a 10% additional tax, subject to the exceptions contained in the remainder of the statute. 26 USC 72(t)(2)(A)(iv) provides that distributions that are "part of a series of substantially equal periodic payments (not less frequently than annually) made for the life (or life expectancy) of the employee or the joint lives (or joint life expectancies) of such employee and his designated beneficiary" are not subject to the 10% tax. That is the full extent of the requirement contained in the statute in terms of defining what a series of substantially equal payments means. The statute does not confer an explicit power on the Secretary to make regulations that define what kind of formulas will qualify. And the Secretary has not done so. The Secretary might have an argument for making such a regulation pursuant to 26 USC 7805(a), which authorises "needful rules and regulations for the enforcement of [the Internal Revenue Code]", but no such regulation has been promulgated in this context.

What has happened is that the IRS has published a document (Revenue Ruling 2002-62) which contains its opinions on what sort of payments might qualify for this exception to the 10% tax. This document is not a regulation entitled to the force of law. Under US administrative law, such documents are still entitled to a measure of deference ("Skidmore deference") but not the same stringent deference granted to regulations with the force of law ("Chevron deference"). In the past, the IRS has argued (unsuccessfully) that its revenue rulings are entitled to the force of law, but it apparently no longer takes that position. As explained by the IRS in IRM 4.10.7.2.6.1, "[r]ulings do not have the force and effect of Treasury Department Regulations". That said, you still wouldn't want to take a position contrary to a Revenue Ruling unless you were armed with a persuasive argument.

However, in this case, you don't need to take a position contrary to the Ruling because all the Ruling actually says is that if you use one of the three methods described in the Ruling, then the IRS will consider you to have met the requirements of 26 USC 72(t)(2)(A)(iv). The Ruling does not purport to limit what other methods might qualify. The Ruling also does not purport to require you to obtain a private letter ruling before using another method (and it's doubtful whether such a requirement would be legal, as it would have no statutory basis). When Congress wants to require a taxpayer to obtain a ruling in advance of a transaction, it says so explicitly in the statute (and there are many instances of this in the IRC, but none that apply here).

What the IRS is really saying on its website is that it would be prudent to obtain a private letter ruling before beginning your purported series of substantially equal payments, because if you don't obtain such a ruling, the IRS might later find that your payments did not qualify, and then you'd have to pay the 10% tax plus other penalties mentioned below, unless you successfully challenged that determination. However, there is no requirement to obtain such a private letter ruling before beginning the payments, or ever. If you're feeling bold, you can begin the series of payments whenever you feel like it, using whatever terms you want, do not include the 10% tax on your tax return, and then, if audited, just be prepared to argue that your payments fit within the definition of 26 USC 72(t)(2)(A)(iv).

If you use this strategy and you are unsuccessful, the statute provides a number of penalties that may apply to you. I won't describe them in detail other than to say that they exist and can be very substantial amounts of money. You can potentially avoid some but not all of the penalties by filing Form 8275 (Disclosure Statement) with your return. Please note that the law regarding the potential penalties is complicated and outside the scope of what I want to address in this post. The good news is that the penalties only apply if your tax position is found to be without merit. So long as your position carries the day, you're fine!

Personally, I might be willing to head into uncharted waters with an untested position and be prepared to defend it if challenged, but I would only do so after familiarising myself with all of the relevant case law and other authorities, and after satisfying myself that the argument was sound. I have not done that with respect to this topic. I offer no opinion in this post on whether a 4% rate has legal merit. This is all just casual information provided for conversational purposes and should not be relied on in planning your retirement strategy, or for any other purpose. I would not recommend that a typical person act on any of the information mentioned in this post.

I put a fair amount of effort into drafting these posts, often including significant research. This one took around an hour to write. Feel free to let me know if you find the information interesting or thought-provoking.
« Last Edit: March 24, 2015, 01:13:19 AM by Cathy »

deborah

  • Senior Mustachian
  • ********
  • Posts: 11776
  • Location: Australia or another awesome area
Re: Has anyone else heard of this?!
« Reply #8 on: March 24, 2015, 03:02:45 AM »
It is very interesting and thought provoking - but then, I generally find your posts to be so. They also shed light on the US way of doing things.

Do you really want to take EQUAL payments? This sounds like it doesn't allow for inflation, so maybe the gradually increasing scale is actually a better method.

innerscorecard

  • Pencil Stache
  • ****
  • Posts: 589
    • Inner Scorecard - Where financial independence, value investing and life meet
Re: Has anyone else heard of this?!
« Reply #9 on: March 24, 2015, 03:06:15 AM »
Some great questions here, Chuck. I don't have any substantive thoughts on the underlying merits of your proposed substantially equal payment model, but I'll comment a bit on the administrative law aspects of this thread.

The primary authority for tax law is the Internal Revenue Code (IRC), codified in Title 26 of the United States Code (26 USC). Some provisions of the IRC provide that the Secretary of the Treasury may make regulations to supplement, modify, or clarify the general rules set out in the Code. When the Secretary acts pursuant to such a provision, the regulations made thereunder have the force of law (unless invalidated under the general principles of administrative law), and are not just "interpretations" of the statute.

For example, the wash sale statute (26 USC 1091) provides that the Secretary may make regulations (i) specifying contracts or options that are not subject to the wash sale rule, and (ii) specifying which specific identifiable shares are not deductible losses in the case of a partial wash sale. If the Secretary exercises that regulatory authority, the regulations made pursuant to that authority have the force of law, unless you can persuade a judge that the regulations are clearly outside the scope of the grant of authority in the statute. It is a difficult case to make, but it is possible for regulations to be invalid. The IRS actually publishes a Form that they require you to use for making such an allegation as part of your tax filing, Form 8275-R (Regulation Disclosure Statement).

However, in the case of the definition of the substantially equal payment regime, there is no relevant grant of regulatory authority contained in the statute. 26 USC 72(t)(1) sets out the general rule that a distribution from a qualified retirement plan is subject to a 10% additional tax, subject to the exceptions contained in the remainder of the statute. 26 USC 72(t)(2)(A)(iv) provides that distributions that are "part of a series of substantially equal periodic payments (not less frequently than annually) made for the life (or life expectancy) of the employee or the joint lives (or joint life expectancies) of such employee and his designated beneficiary" are not subject to the 10% tax. That is the full extent of the requirement contained in the statute in terms of defining what a series of substantially equal payments means. The statute does not confer an explicit power on the Secretary to make regulations that define what kind of formulas will qualify. And the Secretary has not done so. The Secretary might have an argument for making such a regulation pursuant to 26 USC 7805(a), which authorises "needful rules and regulations for the enforcement of [the Internal Revenue Code]", but no such regulation has been promulgated in this context.

What has happened is that the IRS has published a document (Revenue Ruling 2002-62) which contains its opinions on what sort of payments might qualify for this exception to the 10% tax. This document is not a regulation entitled to the force of law. Under US administrative law, such documents are still entitled to a measure of deference ("Skidmore deference") but not the same stringent deference granted to regulations with the force of law ("Chevron deference"). In the past, the IRS has argued (unsuccessfully) that its revenue rulings are entitled to the force of law, but it apparently no longer takes that position. As explained by the IRS in IRM 4.10.7.2.6.1, "[r]ulings do not have the force and effect of Treasury Department Regulations". That said, you still wouldn't want to take a position contrary to a Revenue Ruling unless you were armed with a persuasive argument.

However, in this case, you don't need to take a position contrary to the Ruling because all the Ruling actually says is that if you use one of the three methods described in the Ruling, then the IRS will consider you to have met the requirements of 26 USC 72(t)(2)(A)(iv). The Ruling does not purport to limit what other methods might qualify. The Ruling also does not purport to require you to obtain a private letter ruling before using another method (and it's doubtful whether such a requirement would be legal, as it would have no statutory basis). When Congress wants to require a taxpayer to obtain a ruling in advance of a transaction, it says so explicitly in the statute (and there are many instances of this in the IRC, but none that apply here).

What the IRS is really saying on its website is that it would be prudent to obtain a private letter ruling before beginning your purported series of substantially equal payments, because if you don't obtain such a ruling, the IRS might later find that your payments did not qualify, and then you'd have to pay the 10% tax plus other penalties mentioned below, unless you successfully challenged that determination. However, there is no requirement to obtain such a private letter ruling before beginning the payments, or ever. If you're feeling bold, you can begin the series of payments whenever you feel like it, using whatever terms you want, do not include the 10% tax on your tax return, and then, if audited, just be prepared to argue that your payments fit within the definition of 26 USC 72(t)(2)(A)(iv).

If you use this strategy and you are unsuccessful, the statute provides a number of penalties that may apply to you. I won't describe them in detail other than to say that they exist and can be very substantial amounts of money. You can potentially avoid some but not all of the penalties by filing Form 8275 (Disclosure Statement) with your return. Please note that the law regarding the potential penalties is complicated and outside the scope of what I want to address in this post. The good news is that the penalties only apply if your tax position is found to be without merit. So long as your position carries the day, you're fine!

Personally, I might be willing to head into uncharted waters with an untested position and be prepared to defend it if challenged, but I would only do so after familiarising myself with all of the relevant case law and other authorities, and after satisfying myself that the argument was sound. I have not done that with respect to this topic. I offer no opinion in this post on whether a 4% rate has legal merit. This is all just casual information provided for conversational purposes and should not be relied on in planning your retirement strategy, or for any other purpose. I would not recommend that a typical person act on any of the information mentioned in this post.

I put a fair amount of effort into drafting these posts, often including significant research. This one took around an hour to write. Feel free to let me know if you find the information interesting or thought-provoking.

I read it and appreciated it. I didn't comment because I have nothing to add.

Chuck

  • Bristles
  • ***
  • Posts: 411
  • Age: 32
  • Location: Northern VA
Re: Has anyone else heard of this?!
« Reply #10 on: March 24, 2015, 06:32:25 AM »
Wow Cathy, that is excellent information. In fact it is exactly the information I was looking for. Thank you very much for your time and the research that went into that.

You've made me believe that even though prior notice to the IRS isn't mandatory, it would probably be well advised to jump through the hoops they have constructed, regardless of the legal foundation those hoops sit on. The expense of doing so will ultimately determine if I go this route... Or just back door Roth for simplicity and sanity (and unquestionable legality).

brooklynguy

  • Handlebar Stache
  • *****
  • Posts: 2204
  • Age: 40
Re: Has anyone else heard of this?!
« Reply #11 on: March 24, 2015, 07:02:23 AM »
I put a fair amount of effort into drafting these posts, often including significant research. This one took around an hour to write. Feel free to let me know if you find the information interesting or thought-provoking.

I always appreciate these types of posts of yours.  I love it that you never take anything for granted.  Chuck dug deeper into the rules for the SEPP mechanics and learned that the IRS' guidance indicates there's more to it than what is commonly described by the commentators.  Then you dug deeper still, questioning whether the IRS guidance should be taken at face value.

greatrussian

  • 5 O'Clock Shadow
  • *
  • Posts: 15
  • Age: 348
    • Great Russian Money
Re: Has anyone else heard of this?!
« Reply #12 on: March 24, 2015, 07:26:52 AM »
I glanced through about 10 of the private letter rulings related to the substantially equal payments before finding one where an alternative schedule was proposed and accepted. Most of the letter rulings were related to corrections of some documented administrative error. For the one that was accepted, there were three elements:
1) the mortality table used
2) the interest rate used
3) the frequency of the distributions (e.g. quarterly)

Based on this, I would guess that a 4% rule on its own would not be accepted, since there is no reference to life expectancy. That said, you may be able to back into 4% using a high enough interest rate, though it wouldn't be adjusted for inflation.

theoverlook

  • Bristles
  • ***
  • Posts: 364
Re: Has anyone else heard of this?!
« Reply #13 on: March 24, 2015, 07:48:52 AM »
Great stuff, guys.  Cathy and everyone else included.

sirdoug007

  • Pencil Stache
  • ****
  • Posts: 585
  • Age: 40
  • Location: Houston, TX
Re: Has anyone else heard of this?!
« Reply #14 on: March 24, 2015, 08:36:07 AM »
I think I would go with the suggestion to wait and cherry pick a high mid-term rate as suggested above.  The rates are published monthly and move all over the place.

For a 45 year old, the November 2014 rate of 2.28% would give you a withdrawal rate of 3.91% which is pretty damn close to 4% even in this very low interest rate environment.  In fact pretty much all of these are close enough to 4% that they would work great.  Here are some of the recent 120% of the mid-term rates (annual compounding) and the calculated withdrawal rate at 45:

Month           120% of mid term rate            WR
4/2015               2.04%                             3.76%
3/2015               1.76%                             3.58%
2/2015               2.04%                             3.76%
1/2015               2.10%                             3.79%
12/2014             2.06%                             3.77%
11/2014             2.28%                             3.91%
10/2014             2.22%                             3.87%
9/2014               2.23%                             3.88%

http://apps.irs.gov/app/picklist/list/federalRates.html
http://www.bankrate.com/calculators/retirement/72-t-distribution-calculator.aspx

brooklynguy

  • Handlebar Stache
  • *****
  • Posts: 2204
  • Age: 40
Re: Has anyone else heard of this?!
« Reply #15 on: March 24, 2015, 09:11:36 AM »
Also, let's keep in the mind the possibility of using a combination of the SEPP and Roth conversion pipeline approaches:

http://forum.mrmoneymustache.com/welcome-to-the-forum/using-roth-pipeline-and-72(t)/?nowap;PHPSESSID=okkqm96padbfo12rb23i2bt841

Doulos

  • Stubble
  • **
  • Posts: 116
  • Age: 42
Re: Has anyone else heard of this?!
« Reply #16 on: March 24, 2015, 02:09:47 PM »
How do we upvote Cathy?
Cathy++

seattlecyclone

  • Walrus Stache
  • *******
  • Posts: 5836
  • Age: 36
  • Location: Seattle, WA
    • My blog
Re: Has anyone else heard of this?!
« Reply #17 on: March 24, 2015, 05:36:03 PM »
Also, it made me smile that someone who can say "I've done private letter rulings in my professional life" would assume that a couple of internet amateurs like seattlecyclone (a software engineer, I believe?) and myself (a non-tax corporate lawyer) would be more knowledgeable about this subject than he is :-)

I agree with this sentiment. I have no experience with private letter rulings. Also, Cathy's post is awesome.

MDM

  • Senior Mustachian
  • ********
  • Posts: 10537
Re: Has anyone else heard of this?!
« Reply #18 on: March 26, 2015, 06:20:05 PM »
Feel free to let me know if you find the information interesting or thought-provoking.
Yes!

Thank you for the time, effort and knowledge you give here.

Wile E. Coyote

  • Stubble
  • **
  • Posts: 247
Re: Has anyone else heard of this?!
« Reply #19 on: March 26, 2015, 08:02:05 PM »
I put a fair amount of effort into drafting these posts, often including significant research. This one took around an hour to write. Feel free to let me know if you find the information interesting or thought-provoking.

This was absolutley very interesting and thought provoking!  Thank you for taking the time to post it.

I took a look at some of the private letter rulings issued and one that I found interesting (actually three very identical ones) allowed for the amount to be recalculated every year based upon the current value of the IRA.  The method is described in the ruling as follows:

Quote
The proposed annual distribution amount will be determined each year by amortizing the IRA X account balance as of December 31 over Taxpayer A's life expectancy using a reasonable rate of interest. Taxpayer A's life expectancy will be determined using the single life expectancy table contained in section 1.401(a)(9)-9, Q&A-1 of the Income Tax Regulations (regulations). The interest rate will be 120 percent of the federal mid-term rate as of December 31. Taxpayer A proposes to recalculate the amount of the annual payment each year, however, the method by which the amount of the payment is determined for subsequent years will remain the same. For example, Taxpayer A will recalculate the annual distribution for each succeeding year based on the account balance of IRA X as of December 31 of the prior year, determine his life expectancy as of his age in each distribution year using the single life table contained in section 1.401(a)(9)-9, Q&A-1 of the regulations, and 120 percent of the federal mid-term rate as of December 31 of the prior year.

The IRS ruled:

Quote
The life expectancy and interest rate used are such that they do not result in the circumvention of the requirements of sections 72(t)(2)(A)(iv) and 72(t)(4) of the Code (through the use of an unreasonable high interest rate or an unreasonable life expectancy).

Accordingly, the proposed method (as modified) of determining periodic payments results in substantially equal periodic payments within the meaning of section 72(t)(2)(A)(iv) of the Code, and such payments will not be subject to the additional tax of section 72(t) unless the requirements of section 72(t)(4) are not met.

Of course, this is a private letter ruling that may not be relied upon by others, but I found it interesting as it allowed for fluctuations in value to be taken into consideration.


Chuck

  • Bristles
  • ***
  • Posts: 411
  • Age: 32
  • Location: Northern VA
Re: Has anyone else heard of this?!
« Reply #20 on: March 26, 2015, 10:54:49 PM »

Of course, this is a private letter ruling that may not be relied upon by others, but I found it interesting as it allowed for fluctuations in value to be taken into consideration.
I wonder if simply doing that without first getting written "authorization" would be wise. I mean, if you can point to three separate identical rulings in favor... what's to stop you from just adopting that method yourself? It wouldn't be hard to justify yourself if anyone asked questions...

brooklynguy

  • Handlebar Stache
  • *****
  • Posts: 2204
  • Age: 40
Re: Has anyone else heard of this?!
« Reply #21 on: March 27, 2015, 08:34:57 AM »
I wonder if simply doing that without first getting written "authorization" would be wise. I mean, if you can point to three separate identical rulings in favor... what's to stop you from just adopting that method yourself? It wouldn't be hard to justify yourself if anyone asked questions...

Cathy's post addresses the wisdom of simply using a method other than one of the designated safe harbor approaches, but you definitely can't rely on these pre-existing private letter rulings to justify your decision to the IRS, because private letter rulings by their nature cannot be used or cited as precedent by other taxpayers or IRS personnel (see here for details:  http://www.irs.gov/irm/part32/irm_32-003-002.html).

forummm

  • Walrus Stache
  • *******
  • Posts: 7388
  • Senior Mustachian
Re: Has anyone else heard of this?!
« Reply #22 on: March 27, 2015, 10:29:04 AM »

Of course, this is a private letter ruling that may not be relied upon by others, but I found it interesting as it allowed for fluctuations in value to be taken into consideration.
I wonder if simply doing that without first getting written "authorization" would be wise. I mean, if you can point to three separate identical rulings in favor... what's to stop you from just adopting that method yourself? It wouldn't be hard to justify yourself if anyone asked questions...

Given the relatively small amount of money you're talking about (i.e. just the portion that is investment gain that exceeds the amount you can remove for housing and educational expenses), and the flexibility of options and timing available to you through the 72(t) SEPP methods, which you can start at any time you choose, I can't understand why you'd want to risk the possible enormous hurt that running afoul of the IRS could bring. Just the legal expenses you might incur could be more than the entire value of your account. Why take these risks? And the headache?

I found Cathy's analysis to be very interesting. I also found it to further confirm that an intelligent use of the traditional withdrawal methods is dramatically superior to doing something risky on my own.

madamwitty

  • Bristles
  • ***
  • Posts: 279
  • Age: 39
  • Location: SoCal
Re: Has anyone else heard of this?!
« Reply #23 on: March 27, 2015, 04:14:36 PM »

Given the relatively small amount of money you're talking about (i.e. just the portion that is investment gain that exceeds the amount you can remove for housing and educational expenses), and the flexibility of options and timing available to you through the 72(t) SEPP methods, which you can start at any time you choose, I can't understand why you'd want to risk the possible enormous hurt that running afoul of the IRS could bring. Just the legal expenses you might incur could be more than the entire value of your account. Why take these risks? And the headache?

I found Cathy's analysis to be very interesting. I also found it to further confirm that an intelligent use of the traditional withdrawal methods is dramatically superior to doing something risky on my own.

Sounds like you are assuming a Roth IRA. I think we are primarily talking about Traditional IRAs which have a penalty on all funds withdrawn and can have quite a large balance if rolled over from a 401(k).

And, way to go, Cathy! Lots of research...that explains it! I had kind of assumed you just had encyclopedic knowledge of U.S. laws, which was all the more impressive for someone not originally from the U.S. :-)

forummm

  • Walrus Stache
  • *******
  • Posts: 7388
  • Senior Mustachian
Re: Has anyone else heard of this?!
« Reply #24 on: March 28, 2015, 08:31:10 AM »

Given the relatively small amount of money you're talking about (i.e. just the portion that is investment gain that exceeds the amount you can remove for housing and educational expenses), and the flexibility of options and timing available to you through the 72(t) SEPP methods, which you can start at any time you choose, I can't understand why you'd want to risk the possible enormous hurt that running afoul of the IRS could bring. Just the legal expenses you might incur could be more than the entire value of your account. Why take these risks? And the headache?

I found Cathy's analysis to be very interesting. I also found it to further confirm that an intelligent use of the traditional withdrawal methods is dramatically superior to doing something risky on my own.

Sounds like you are assuming a Roth IRA. I think we are primarily talking about Traditional IRAs which have a penalty on all funds withdrawn and can have quite a large balance if rolled over from a 401(k).

And, way to go, Cathy! Lots of research...that explains it! I had kind of assumed you just had encyclopedic knowledge of U.S. laws, which was all the more impressive for someone not originally from the U.S. :-)

The OP is talking about a Roth. And TIRAs are also easy to get money out of via a Roth Pipeline.

MDM

  • Senior Mustachian
  • ********
  • Posts: 10537
Re: Has anyone else heard of this?!
« Reply #25 on: March 28, 2015, 08:42:35 AM »
The OP is talking about a Roth. And TIRAs are also easy to get money out of via a Roth Pipeline.

From the OP (bold added):
I very recently made a thread on Roth IRAs, and ... while I was doing so I stumbled onto something unrelated...and I want to know what you guys think of it:

So...to withdraw money...from an IRA until you turn 59 1/2...without penalty.  It sounds like an awesome deal for early retirees, but I know of no one that is considering using them because of the three methods used to caculate your withdrawal rate... suck.

I personally think it would be awsome to not have to worry about messing with the Roth IRA conversion ladder and having to think five years ahead...