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72t or SEPP (Substantially Equal Periodic Payments)

beebee
edited November 2012 in Off-Topic
Anyone have experience utilizing this method of accessing IRA funds?

SEPP and the Tax code:
"The Internal Revenue Code section 72(t) and 72(q) can allow for penalty free early withdrawals from retirement accounts under certain circumstances. The IRS limits how much can be withdrawn by assuming any future earnings will be at most 120% of the Federal Mid-Term.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."

Understanding substantially equal periodic payments:
vanguard website

72t on the Net (Calculators, forums,etc.):
72t.net/

Comments

  • InvestorInvestor
    edited November 2012
    I believe @Rono's wife was taking 72t payments.
  • ronorono
    Howdy,

    Correctomundo, Investor, thanks. 72t covers them all. Of the three choices - minimum, amortization or annuitization we chose the last as it provided the highest monthly payout.

    rono
  • beebee
    edited November 2012
    Reply to @rono:

    Thanks for the replies,

    One question I had...when it comes to managing the designated SEPP account, are you still free to rebalance, go to cash, buy and sell funds within the account or is the account and investment static?

  • ronorono
    Hi Bee,

    Sure. We had ours at Vanguard and used their Prime Money as the distribution center. I rebalanced mostly on a yearly basis and moved things at will within the overall account. This is why I still don't care much for vanguard. Simply yearly rebalancing after the dot.com meltdown resulted in some Early Redemption Fees that were unjustified and frankly, quite obscene. I appreciate their wanting to discourage traders but yearly rebalancing . . .

    As for your management going forward, the only limits you have are based upon the type of account it is. I could have had this in a brokerage account and traded stocks. feh. Not an issue. It's all about that regular withdrawal being made until you hit 59.5. Make sure you have them withhold sufficient to cover the taxes.

    peace,

    rono
  • beebee
    Reply to @rono:

    Thanks rono...good points.

    I believe the early redemption fees can be avoided if one were to hold Vanguard ETFs rather than Vanguard funds. I switched from VEIEX (Vanguard Emerging Market Index) to VWO for this very reason. Thanks for your responses.
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