Author Topic: Has anyone actually done a 72t withdrawal?  (Read 3588 times)

lhamo

  • Handlebar Stache
  • *****
  • Posts: 1850
  • Location: Seattle
Has anyone actually done a 72t withdrawal?
« on: June 26, 2021, 01:59:16 PM »
I am thinking about it.   I'd have to stick with it for 7 years (currently age 52).  Would help me to draw down the balance of my tax-deferred retirement account, or at least keep it from getting too big.  The required withdrawal amount would probably not cover my expenses but would be low enough that I would still hit the sweet spot with ACA subsidies/cost sharing.  I have other buckets to draw from to cover the other expenses.

I am aware that there are other options -- Roth ladder, etc.   Just curious if anyone here has done the 72t option and, if so, how it has played out.

PhysicianOnFIRE

  • Bristles
  • ***
  • Posts: 462
  • Age: 46
  • Location: Up North
    • Physician On FIRE
Re: Has anyone actually done a 72t withdrawal?
« Reply #1 on: June 27, 2021, 05:14:49 PM »

lhamo

  • Handlebar Stache
  • *****
  • Posts: 1850
  • Location: Seattle
Re: Has anyone actually done a 72t withdrawal?
« Reply #2 on: June 27, 2021, 05:37:34 PM »
Thanks!

markbike528CBX

  • Handlebar Stache
  • *****
  • Posts: 1726
  • Location: the Everbrown part of the Evergreen State (WA)
Re: Has anyone actually done a 72t withdrawal?
« Reply #3 on: June 27, 2021, 11:02:40 PM »
Yep.

Small traditional IRA.
I use it to fill up the Married Filing Jointly taxable space/deduction (24K). 
Other income is  long term capital gains and mostly qualified dividends, which are taxed, but at 0%.

My reasoning is the same as your "Would help me to draw down the balance of my tax-deferred retirement account, or at least keep it from getting too big."

Bateaux

  • Handlebar Stache
  • *****
  • Posts: 2097
  • Location: Port Vincent
Re: Has anyone actually done a 72t withdrawal?
« Reply #4 on: June 29, 2021, 06:58:12 AM »
I thought about it.  But I'm only a year and a half from my 55th year.  It's January of the year you turn 55.  I'm a June baby.  I'm working till the 55 rule takes effect.

FLBiker

  • Handlebar Stache
  • *****
  • Posts: 1439
  • Age: 45
  • Location: Canada
    • Chop Wood Carry FIRE
Re: Has anyone actually done a 72t withdrawal?
« Reply #5 on: June 29, 2021, 06:59:41 AM »
I'm not yet, but I'm planning to.  We've got a good chunk of our stash in 403bs, which we plan to convert to TIRAs once we retire, and drawdown via SEPP.  For us, it's really the only option because we moved to Canada from the US last year, so Roth IRA conversions are off the table -- Canada recognizes Roth IRAs, but you can't contribute to them after you become resident.

I'm 44 and DW is 40.  I'm planning to retire (or at least work part time) in the next year or two.  I'm also planning to engage a crossboard fee-only financial planner to at least review my drawdown strategy, as it can get kind of complicated.

frugaldevil

  • 5 O'Clock Shadow
  • *
  • Posts: 37
Re: Has anyone actually done a 72t withdrawal?
« Reply #6 on: June 29, 2021, 07:13:16 AM »
I'm also planning on using 72t starting in next 3-5 years. The part that concerns me is that interest rates are so low right now that I might not be able to get enough out of my TIRA's this way. (Thanks for the article link up thread!)

I need to model it out in detail, but so far I've assumed that my current tax savings from using tax-deferred vehicles is bigger than any early withdrawal penalty I might face if the 72t doesn't cover my spending needs. But I still have some time to start saving in a taxable brokerage instead (?) Or hope interest rates come back up in the next few years.

secondcor521

  • Magnum Stache
  • ******
  • Posts: 4260
  • Age: 52
  • Location: Boise, Idaho
  • Big cattle, no hat.
    • Age of Eon - Overwatch player videos
Re: Has anyone actually done a 72t withdrawal?
« Reply #7 on: June 29, 2021, 08:06:52 AM »
I'm thinking about it, so posting to follow.

I'm 52 and currently just doing a Roth conversion ladder and supplementing from taxable as needed.  I may switch at age 54.5 to splitting my tIRA into two parts, doing a SEPP from the smaller one and continuing Roth conversions from the larger one.

Still thinking it over.  It's probably the smarter move tax-wise, but there's the hassle factor and the loss of flexibility.

FLBiker

  • Handlebar Stache
  • *****
  • Posts: 1439
  • Age: 45
  • Location: Canada
    • Chop Wood Carry FIRE
Re: Has anyone actually done a 72t withdrawal?
« Reply #8 on: June 29, 2021, 08:07:47 AM »
I'm also planning on using 72t starting in next 3-5 years. The part that concerns me is that interest rates are so low right now that I might not be able to get enough out of my TIRA's this way. (Thanks for the article link up thread!)

I need to model it out in detail, but so far I've assumed that my current tax savings from using tax-deferred vehicles is bigger than any early withdrawal penalty I might face if the 72t doesn't cover my spending needs. But I still have some time to start saving in a taxable brokerage instead (?) Or hope interest rates come back up in the next few years.

Ha -- I'm in the same boat.  I might just take the penalty, if push comes to shove.

lhamo

  • Handlebar Stache
  • *****
  • Posts: 1850
  • Location: Seattle
Re: Has anyone actually done a 72t withdrawal?
« Reply #9 on: June 29, 2021, 10:16:35 AM »
I think if your income needs are relatively low, you are reasonably close to 59.5, and you have other buckets to pull from if necessary it is worth giving it a go.  Helps if you have IRA money split over a few accounts so that you can start with one of the smaller ones and see how it goes.


SKL-HOU

  • Pencil Stache
  • ****
  • Posts: 604
  • Location: Houston, TX
Re: Has anyone actually done a 72t withdrawal?
« Reply #10 on: June 29, 2021, 11:35:33 AM »
I thought about it.  But I'm only a year and a half from my 55th year.  It's January of the year you turn 55.  I'm a June baby.  I'm working till the 55 rule takes effect.

I think i had read that some companies make you take out all with this rule instead of partial. Have you checked with your plan?

Bateaux

  • Handlebar Stache
  • *****
  • Posts: 2097
  • Location: Port Vincent
Re: Has anyone actually done a 72t withdrawal?
« Reply #11 on: June 30, 2021, 06:27:47 AM »
I thought about it.  But I'm only a year and a half from my 55th year.  It's January of the year you turn 55.  I'm a June baby.  I'm working till the 55 rule takes effect.

I think i had read that some companies make you take out all with this rule instead of partial. Have you checked with your plan?

For my plan it must stay with the employer.  We use Schwab, so I'm fine with that.

Kord

  • 5 O'Clock Shadow
  • *
  • Posts: 1
Re: Has anyone actually done a 72t withdrawal?
« Reply #12 on: June 30, 2021, 12:04:01 PM »
I'm planning to do a 72t starting next year (age 52) and found this site that explains a LOT of what you need to know... potential pitfalls... etc.

https://72tnet.com/community/

This link is specific to their community page but they have other resources.

Sandi_k

  • Pencil Stache
  • ****
  • Posts: 533
  • Location: California
Re: Has anyone actually done a 72t withdrawal?
« Reply #13 on: June 30, 2021, 02:58:34 PM »
PTF.

MissNancyPryor

  • Bristles
  • ***
  • Posts: 451
  • The Stewardess is Flying the Plane!
Re: Has anyone actually done a 72t withdrawal?
« Reply #14 on: August 05, 2021, 09:09:48 PM »
I have wondered about this too, thanks for creating the thread.  My deferred account keeps getting larger and I also have a big taxable account.  I am thinking of taking big chunks from that taxable account for life-altering large purchases and using the 72t option as my fixed income rather than let it continue to grow.  Taxes and ACA management are tough when trying to tap these though. 

BTW, love that the forum search tool finally, actually, works!  I have used it a few times and it is great, so much better than when it was completely worthless and you had to go out do a google+MMM to get anything inside the walls.   ;)   
« Last Edit: August 05, 2021, 11:36:58 PM by MissNancyPryor »

sparkytheop

  • Pencil Stache
  • ****
  • Posts: 973
Re: Has anyone actually done a 72t withdrawal?
« Reply #15 on: August 05, 2021, 09:27:06 PM »
I've not done it, but it will be part of my strategy if I retire earlier than expected.  The rates have almost doubled this year, but are still very low, so it would take a large chunk of money to be able to withdraw much.  Current rates can be found here https://www.irs.gov/businesses/small-businesses-self-employed/section-7520-interest-rates

tj

  • Handlebar Stache
  • *****
  • Posts: 1381
  • Age: 36
  • Location: Maui
    • Arcadia Power
Re: Has anyone actually done a 72t withdrawal?
« Reply #16 on: August 13, 2021, 11:40:47 AM »
bamfmoney is the most prominent blogger, he has written annual updates, and he offers a service where he will do the calculations for you. He even went back to work, continues the distriubutions, doesn't seem to be an issue for him.

http://bamfmoney.com/2016/05/reg-72t-access-your-ira-without-the-penalty/

Fru-Gal

  • Bristles
  • ***
  • Posts: 428
Re: Has anyone actually done a 72t withdrawal?
« Reply #17 on: December 05, 2021, 08:47:38 AM »
PTF

Roland of Gilead

  • Handlebar Stache
  • *****
  • Posts: 2455
Re: Has anyone actually done a 72t withdrawal?
« Reply #18 on: December 05, 2021, 11:22:40 AM »
We fell into putting more into our house build than initially thought (not entirely our fault since materials went up way way more than average inflation).

Right now I estimate our taxable account will run out of money in 2 years at age 53/54.  Our house would be completely done by then (better be!) and would be worth about 8 years living expenses but I don't know if we should try and tap into that somehow or do a 72t?

I also could scrape a year or so of living expenses by withdrawing Roth contributions from past years (that is tax and penalty free).  Selling a few items that we no longer need or we used building the house could gain another year.

How bad is a 72t?   The big issue for me is it is taxable income you can't control, for things like ACA subsidy...once you start, you have to take it each year or face a severe penalty...even if some circumstance change and you don't need or want to take it.

MoseyingAlong

  • Bristles
  • ***
  • Posts: 282
Re: Has anyone actually done a 72t withdrawal?
« Reply #19 on: December 05, 2021, 11:56:52 AM »
@Roland of Gilead
I have not personally used 72t. Spent a good bit of time studying them and advising about them in a prior profession.

How about using one for a portion of your income each year? Maybe the amount of your standard deduction or the minimum income you want for ACA purposes?
Then use your cash reserves or those other sources of funds to top up to your spending amount.


markbike528CBX

  • Handlebar Stache
  • *****
  • Posts: 1726
  • Location: the Everbrown part of the Evergreen State (WA)
Re: Has anyone actually done a 72t withdrawal?
« Reply #20 on: December 05, 2021, 12:11:55 PM »
We fell into putting more into our house build than initially thought (not entirely our fault since materials went up way way more than average inflation).

Right now I estimate our taxable account will run out of money in 2 years at age 53/54.  Our house would be completely done by then (better be!) and would be worth about 8 years living expenses but I don't know if we should try and tap into that somehow or do a 72t?

I also could scrape a year or so of living expenses by withdrawing Roth contributions from past years (that is tax and penalty free).  Selling a few items that we no longer need or we used building the house could gain another year.

How bad is a 72t?   The big issue for me is it is taxable income you can't control, for things like ACA subsidy...once you start, you have to take it each year or face a severe penalty...even if some circumstance change and you don't need or want to take it.

You can size the IRA account you take the 72t to meet your income needs. 
 Also, the calculators like https://www.bankrate.com/retirement/calculators/72-t-distribution-calculator/ have defaults that are close to the maximum.   
You can size the "reasonable interest rate" to further adjust your withdrawal.

Once you start, you have to take the same amount out for the amortization or annutization method.   
If that doesn't work for you, you can change to the RMD method once and stay there, which requires yearly recalcuation of amounts, but is typically a lower withdrawal amount.

The 72t is mostly a tIRA (not 401k) strategy, especially for those not under the "rule of 55" for 401k, and people like me who FIRED before 55 and the 401k plan (not law) only allows TOTAL distributions.

as MoseyingAlong noted and I implied above, and stated in my prior post, you don't have to take the maximum allowed.

Question for @Roland of Gilead.  Is your tax-deferred (tIRA, 401k etc) enough to support you from 53 to the end?  Running out of taxable seems scary.   A 72t could help you extend your taxable (flexible) income.

I was wondering what the PTF people were looking for after all the prior answers posted, but I guess I answered my own question; more questions, more examples, more answers.
« Last Edit: December 24, 2021, 07:43:53 PM by markbike528CBX »

Trifele

  • Magnum Stache
  • ******
  • Posts: 4081
  • Age: 54
  • Location: Outside, NC, US
    • In The Garden
Re: Has anyone actually done a 72t withdrawal?
« Reply #21 on: December 09, 2021, 04:02:47 AM »
Add me as a PTF too.  I've been thinking about it, both as a way draw down the IRA and also generate income for the health care exchange.  The hard part for us is we don't need the income this year or next year, but then after that we have 3.5 years we need to bridge before my spouse hits 59.5.

I think if I did it right now the timing would be just about perfect -- the SEPPs would carry us just a bit beyond 59.5.  But I keep hesitating, haha.

I appreciate the links y'all.   

markpst

  • 5 O'Clock Shadow
  • *
  • Posts: 60
Re: Has anyone actually done a 72t withdrawal?
« Reply #22 on: December 23, 2021, 06:06:05 PM »
I am interested in doing one, but hoping to use the rule of 55 instead. I found a spreadsheet, updated the life expectancy table, added links to the IRS life expectancy table and most recent Federal interest rates. On 'Sheet1' and 'Sheet2' I added some information from the internet (most likely all from 72t.net) that I thought helped in my potential situation if I ever do this.

I haven't revisited this in months, but maybe it will help. (Be sure to check your/my assumptions!) Note the original spreadsheet came from here:
https://retireearlyhomepage.com/amort2004.html
« Last Edit: December 23, 2021, 06:07:59 PM by markpst »

iluvzbeach

  • Pencil Stache
  • ****
  • Posts: 745
Re: Has anyone actually done a 72t withdrawal?
« Reply #23 on: December 23, 2021, 09:04:29 PM »
PTF and to make it easier to locate later.

Thanks to those who’ve shared this great info.

DoneFSO

  • 5 O'Clock Shadow
  • *
  • Posts: 53
Re: Has anyone actually done a 72t withdrawal?
« Reply #24 on: December 23, 2021, 10:29:54 PM »
Hi lhamo!  My original FIRE plan involved 72(t) distributions.  I didn't actually put the plan into action because I ultimately decided not to FIRE last year, as you are aware.  Nonetheless, the planning for 72(t) was in earnest and done with a fiduciary.  I was to live off of savings, severance, and Roth IRA contributions until 2026, at which point I was to begin taking 72(t) distributions along with sales of taxable shares, which each was to have covered about half of my projected living expenses until age 62, at which point I was to switch to pension, Social Security, and Roth IRA earnings.  I had it all planned out on a nice spreadsheet!

RWTL

  • Bristles
  • ***
  • Posts: 342
Re: Has anyone actually done a 72t withdrawal?
« Reply #25 on: December 24, 2021, 06:16:29 AM »
PTF