Early Withdrawal

Archive for November, 2007

What is the right age for starting 72t distribution?

An important part of the assessment of 72t Distributions as an income alternative is your age.

You can be too young or too old to benefit fully from this approach.

Am I too young for 72t Distributions, under Rule 72t?

If you’re still in your early 40s or younger, you may be too young to derive real benefits from 72t Distributions, under the Rule 72t.

There are two reasons why you may not benefit from Rule 72t Early Retirement distributions.

• One is simply that you may not have accumulated much money in an IRA. You haven’t had enough time to make many IRA contributions, and those contributions haven’t had a long time to compound.

• Secondly, the amount of the 72t distribution is calculated, using a 72t Calculator, on the basis of your life expectancy, and if you’re around 40, for example, your life expectancy is more than four decades.

Do the math to decide if a 72t distribution is right for you

If your total IRA resources are limited, and if this sum has to be divided up over an extended life expectancy, you’re not going to be able to generate much current income using a 72(t) distribution. Moreover, you’re choosing an expensive way to generate cash��you’re using money that could otherwise be growing on a tax-deferred basis over the next several decades to provide for your retirement years.

Instead of taking advantage of Rule 72t and the 72t Distributions, a home equity loan or other form of long-term credit might be a more effective solution.

Ira Glass on Storytelling #1

Question: Can I use an early Roth withdrawal to pay the taxes on the rollover from an IRA into that ROTH?

I will be 70 and a half in 2012, and I rolled over a portion of my IRA into a ROTH mid 2010 to benifit from the 2-year rule that allows me to report the rollover as income split between 2011 and 2011. Now I want to use any of my RMDs from my IRA to pay toward the resulting taxes. THEN, considering the Early Withdrawal Penalty of 10% on the ROTH is less than the Taxes on an IRA, I plan to pay the remaining taxes with withdrawals from the ROTH. Then after 2012, I plan to continue a systematic IRA rollover to that ROTH that when combined with any IRA RMDs keeps my yearly taxable income below that $250,000 level, and paying the taxes this way. Eventually the 10% penalty goes away.

Answer: I really don’t get the aim of this exercise.

You said “considering the Early Withdrawal Penalty of 10% on the ROTH is less than the taxes on an IRA”

But the money you put into the Roth this year is getting taxed in 2011 and 2012, and seeing how you aren’t looking at a long-term growth window (like a 22 year old right out of college) you lose the main benefit – long term tax free growth. On top of that, you pulled money out when you didn’t need to during a down market, meaning you won’t benefit as much from the hopeful rebound in the coming years.

Worse yet, you’ve now increased your taxable income over the next 2 years, which might put you in a higher tax bracket (unless you would be at the highest rate anyway, which would be even worse, because you accelerated income in a higher bracket when you could wait it out, take it as needed, and keep taxes low as possible).

I would probably go talk to some sort of financial adviser and get this whole thing sorted out. You still have time to have the Roth conversion reversed (“recharacterized”) so you won’t get dinged on taxes

Ira Krakow’s Python 3 Tutorial Part 1 (Expressions)