72t vs. Roth

[dabears847]

I'm curious if anyone on the board has done the 72t or Roth conversions. Which is easier to accomplish, offers the best benefits etc.? I have a large portion of savings in 401k and I'm looking at the final plan of getting at those funds. Can one split the  funds so half is 72t eligible and the other half stays in the IRA for the Roth for conversion?

1. Convert to IRA
2. Split account into two accounts IRA
3. 50% Roth Conversion - 5 year withdrawal plans...etc.
4. 50% IRA 72t on that account
5. 5 year gap fund
6. What seems to work best?

[rpr]

The answer somewhat depends on your age.

Do you have other accessible accounts from which you can find your expenses for the next five years? If so, then the Roth conversion pipeline is preferable. The problem with the 72t approach is that you have to continue it either till age 59 or for at least 5 years, whichever is longer.

Are you older than 55 and are you retiring from the job where you have the 401k. If so, you may be able to withdraw the 401k funds without penalties. 


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[dabears847]

The gap fund can be enough to cover up to 8-10 years as I have it mapped out now, best case scenario. I have a portion now saved up but would have five years to make it the amount needed. Age 40 is go age to new less stressful job of part time Real Estate.

[rpr]

If will have a gap fund, then I don't see the point of a 72t.


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[dabears847]

Why, due to the conversion of the Traditional IRA to Roth?

Has anyone done a 72t?

Has anyone done the Roth conversion?

If so can you elaborate on the process.

[seattlecyclone]

The 72(t) SEPP withdrawals are very inflexible. You have to pick a formula to calculate your yearly withdrawals and stick with it until you turn 59½. Roth conversions give you the opportunity to take out exactly as much as you expect you'll need, and it's very easy to accomplish if you're converting from traditional to Roth accounts with the same company.

[fartface]

I converted from a Traditional IRA to Roth last year when we dropped from 25% to 15% tax bracket. It was easy. Did mine on E*Trade. They send you a tax form. You enter it on the correct line on your return. It's considered income. You pay at your tax rate. Some of the really savvy tax planners do this w/no federal tax consequence whatsoever.

The 72t however seems like a LOT of red tape. I'm going to try and avoid it if possible. Roth laddering is more appealing IMHO.

[dramaman]

I've been studying 72t for my future ER, and I stumbled across some text in the rules that seemed to hint at maybe a possible way to make the distribution amount more flexible...

http://72t.net/72t/IRS/Revenue/Ruling/2002-62

This describes IRS Rule 2002-62 in which Section 2(e) talks about modifying the account balance by transferring funds to or from another retirement (IRA) account.

"(e) Changes to account balance. Under all three methods, substantially equal periodic payments are calculated with respect to an account balance as of the first valuation date selected in paragraph (d) above. Thus, a modification to the series of payments will occur if, after such date, there is (i) any addition to the account balance other than gains or losses, (ii) any nontaxable transfer of a portion of the account balance to another retirement plan, or (iii) a rollover by the taxpayer of the amount received resulting in such amount not being taxable. "

I'm still uncertain whether it is saying that this is a legitimate way to modify the the series of payments OR if this is simply another modification that would violate the rules of the 72t.

Does anyone know of an interpretation of this that makes it more clear what this is trying to say?

[dabears847]

I've been studying 72t for my future ER, and I stumbled across some text in the rules that seemed to hint at maybe a possible way to make the distribution amount more flexible...

http://72t.net/72t/IRS/Revenue/Ruling/2002-62

This describes IRS Rule 2002-62 in which Section 2(e) talks about modifying the account balance by transferring funds to or from another retirement (IRA) account.

"(e) Changes to account balance. Under all three methods, substantially equal periodic payments are calculated with respect to an account balance as of the first valuation date selected in paragraph (d) above. Thus, a modification to the series of payments will occur if, after such date, there is (i) any addition to the account balance other than gains or losses, (ii) any nontaxable transfer of a portion of the account balance to another retirement plan, or (iii) a rollover by the taxpayer of the amount received resulting in such amount not being taxable. "

I'm still uncertain whether it is saying that this is a legitimate way to modify the the series of payments OR if this is simply another modification that would violate the rules of the 72t.

Does anyone know of an interpretation of this that makes it more clear what this is trying to say?

Sounds interesting, one can split up multiple accounts to achieve desired access.

[forummm]

72t is a pain. I'm planning to do the Roth pipeline.