Early Withdrawal

Archive for December, 2007

As well as asking whether an individual is too young for a 72t Early Retirement distrubution, some may ask the opposite: am I too old for a 72t distribution? Rule 72t does not benefit everyone. Age does have something to do with whether you will fully benefit from taking 72t Distributions.

I’m in mid to late 50s – is 72 t distribution right for me?

If you’re in your mid- to late-50s, you may also be better off finding a different income alternative than 72t Distributions.

Using the 72t distribution method requires you to maintain a distribution schedule for at least five years, and this will tie your hands in using IRA assets after you reach age 59�.

If you do not elect a 72t distribution, there is no schedule in withdrawing IRA funds once you pass age 59�: you can then take as much or as little as you like until age 70�.

So…

If you’re close to 59�, it may be better to look at other alternatives besides 72t Distributions for generating income.

For example, many employer retirement plans permit participants to begin withdrawing funds without penalty after they reach the age of 55.

Or perhaps you can use other resources or a personal loan to help meet expenses until you reach the age of 59�. Then you can begin withdrawing IRA funds in whatever manner suits you.

Am I just the right age for 72t Distributions?

Unfortunately, there’s no age that is just right for using 72t Distributions.

You need to calculate the penalty-free distributions and evaluate them in terms of your needs and your other financial alternatives.

Question: If I withdraw $23,000 from my thrift savings account (retirement account), how much will I owe for taxes ?

I know I will get hit hard on the taxes for the Early Withdrawal, but do you know how much ? 20% …. 30%…..40% ? I’m still currently working full time, but need the money to pay off debt.

Answer: ten% penalty…..plus regular incoime tax

Is There Asset Protection with Your Retirement Account?

Question: IRA – Roth or Traditional? Long Range Tax Planning?

O.K. I know that a Roth IRA uses after-tax dollars and grows tax free and that certain contributions to a traditional IRA are deductible. Has anyone considered the very long range (30+) impact of federal income tax rates on their decision of which form of IRA to select. Given the level of the deficit and the national debt, I sense that we may be in a period of historically low federal income tax rates and that in, say 30 years from now, rates may be so high that I end up paying more taxes on withdrawals from a Traditional IRA than that taxes I would pay on my contributions to a Roth IRA today. Your thoughts?

Answer: I’m a CPA and the Roth beats the traditional in almost every situation. Think of it this way…….which is better? Tax Deferred or Tax-Free? With the traditional IRA you eventually pay the piper.

Two possible exceptions: In the 401(k) scenario with an employer match, always take the free money. Secondly, if you are nearing retirement and we are expecting a down market over the next five years, that might be a scenario where the deduction rather than the tax-free growth might make sense. Run the numbers if this latter situation applies to you.

IRA Distribution Mistakes