Can you give us a real life example of how you have helped someone utilize 72(t)?
Sure, we get calls and inquiries from all over the country that people either need to start income now or want to start income now and everyone’s situation is different. Recently a gentleman, age 47 reached out and he let us know he had $900,000 in his pension & 401(k) plan and he was leaving his sales job earning $150k+ annually and he wanted to start his own business. After learning about his goals & objectives, it was determined that he wanted to make sure he had $3000/month of income coming in while he was launching his business which was the amount that was going to cover his fixed living expenses. We were able to set up a separate IRA with approx. $650k in it and this dollar amount at his age and based on the IRS calculations is providing him the $3k/month of penalty-free income he desired. He didn’t need to use all of his retirement money for the 72(t) to accomplish his goal. And again, because he is 47 he must take this $3000/month of income until he reaches the age 59 ½.
Can people still be working and take a 72(t) payment?
Yes, in fact most of the hundreds of clients nationwide we have set up 72(t) income for are people that are still working or go back to work. Important to know that you cannot set up a 72(t) with a retirement account you are currently contributing to, but you can use a 401(k) from a previous employer or an outside IRA.
What else should the audience know?
This is something that you should not do on your own. Seek professional advice. We get calls and inquiries from all over the country including inquiries from other financial advisors, tax professionals and people asking if we can provide guidance and help them in how to properly structure a 72(t). You need to work with an expert. We even get calls from individuals that tried to do this on their own and now they are in trouble with the IRS and are now asking for our help. It’s too late. Again, don’t try this at home… just because you can do it, doesn’t mean you should. Also, your audience needs to know that you should use a financial institution who will provide the exception coding on the 1099 tax form sent each year. The correct code on the 1099 will let the IRS know that the payment is not subject to the 10% additional tax and an exception applies. Important to know that, as an example, Fidelity and Vanguard will not properly code a 72(t) distribution or guarantee the calculation or the accuracy of the calculation. We have custodians that will properly code and guarantee the calculation which again is so important. Remember, there are 1000 ways to bake this cake and we have the expertise to figure out what ingredients and in what portions are necessary to bake the cake the way you want and like it.
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This is the go-to place online for great information about 72(t) and an easy way for people to reach out to us. Listeners can also call us at 480-556-9931.