How to calculate 72T?
Hello,
I have a client with date of birth 10/03/1954 who is single. Her 3 children are the beneficiary to her IRA. date of birth of her oldest is 12/01/1979. She needs income monthly so she wants to do a 72T so she does not get penalized.
How should I caclulate this for her to get the most dollars?
Also does she need to do a letter or fill out a form with IRS to qualify to take the 72T?
please advise.
thanks.
Permalink Submitted by Alan Spross on Fri, 2012-01-13 20:19
Here is a link to the 72t net calculator, and there is also considerable advice there.
Note that if she starts a plan, it will have to run for 60 months worth of payments even though she is only about 27 months short of reaching 59.5 now.
To get the highest distribution per dollar of IRA balance, use the amortization method and individual rather than joint calculation which ignores the beneficiary. Her age would be 58, the age she will reach in 2012. Her IRA can be partitioned into more than one IRA if the balance in the IRA now produces a figure that is more than she needs.
There is no filing requirement with the IRS, but she calculations should be double checked and a copy retained in the event the IRS ever inquires about her plan. For her first year (2012) she has a choice of pro rating the annual amount by the month (eg first distribution in April, take out 9 months worth) started or taking out the full annual calculation.
http://www.72t.net/72t/Sepp/Calculators
Permalink Submitted by Anonymous (not verified) on Sat, 2012-01-14 00:59
I would suggest that before you determine the calculation you may want to fully understand how the 72(t) exception works. Many taxpayers get burned (penalties and interest) when they fail to comply with the rules of this exception.
Permalink Submitted by James Tomik on Tue, 2012-07-17 13:42
Am I going calculator crazy?
I recommend you seek several sources, especially the financial firm making the distributions, in calculating 72T. Several calculators from different companies/venders/websites that I used produced different results, even using the proper fed rate. If the IRA participant wants to maximize distributions for living expense, this is important, not to mention the concern of using the proper IRS calculation and of course, document, document, document in case of audit.
Permalink Submitted by Eric Bruskin on Tue, 2013-11-12 19:27
Based on personal experience, Fidelity is worse than useless here. Based on a posting on another site (and personal experience with a different department), Vanguard won’t help you either. If anyone knows a firm that WILL help with this, please share with us.
Permalink Submitted by Alan - IRA critic on Tue, 2013-11-12 22:39
What is your question? Or, if you want to do your own research, this site is solely dedicated to 72t plans and includes calculators, planning worksheets etc: http://www.72t.net/Home
Permalink Submitted by Alan Spross on Tue, 2012-07-17 23:52
The only difference usually encountered in the calculators is due to some calculators factoring in the distribution frequency (eg monthly, semi annual, annual etc) and some do not. Leading 72t website does not believe that distribution frequency matters and uses only the annual assumption. So if you want to compare apples to apples, show annual distributions in all calculators. The IRS does not appear to care over this small difference, as there is no indication they have brought up the issue.
Permalink Submitted by Micheal hassy on Wed, 2012-08-22 13:36
The Internal Revenue Code sections 72(t) and 72(q) allow for penalty free early withdrawals from retirement accounts. The IRS limits how much can be withdrawn by assuming any future earnings will be at most 120% of the Federal Mid-Term. This conservative approach can help assure that you will not prematurely deplete your retirement account. However, if you have a higher rate of return your account can actually grow, even with your distributions. On the other hand, if you suffer losses your account balance may end up shrinking faster than you might expect. This calculator is designed to examine the affects of 72(t)/(q) distributions on your retirement plan balance.