72t/SEPP

Submitted by Rosemary Anders on Thu, 2016-10-27 23:18

My husband and I am looking into taking a 72t distribution on my IRA. I plan on doing this just for 5 years, as we will be over 59.5 at the end of 5 years.

I have done some research and calculations, etc. I am using the calculator from Bankrate and was hoping for some guidance on the “Reasonable Interest Rate” as well as any tips for using the Fix annuitization method. This is my preferred method because it allows the greatest distribution amount.

My custodian wants me to specify the amount and they will use box 1. From what I understand this is typical. I know i have to file the IRS form each year.

Anything else I should know?



Submitted by Alan - IRA critic on Fri, 2016-10-28 01:27

  • The fixed amortization method yields a slightly higher payout per dollar of IRA balance than annuitization. The approach is to figure out how much you need to cover expenses including inflation, use a reverse calculator such as the one at 72tonthenet to determine the IRA balance needed to fund the distribution you need, and then partition your IRA into an account with that exact balance with the other account kept separate for emergency needs. The interest rate you should use is the highest available for either of the two months prior to the month of your first distribution. Again, the highest rate yields the highest payout and using the highest rate allows you to get your distributions from the smallest possible balance.
  • You should also use “individual” rather than joint life expectancy for the same reason – higher payout.
  • Few custodians provide the 2 code in Box 7, so you will probably have to file a 5329 each year to override the 1 code with exception code “02”.
  • If your IRA balance is not high enough to generate the distribution you need, you have some more planning to do. You do not want to set up a plan that is likely to be busted because you need to take out a larger distribution than the calculation.
  • If your first distribution is in November, the highest interest rate you can use is 1.56%. If you wait till December you can use 1.61%, even higher if the Nov rate is higher than 1.61 when published.

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