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72t

How a Spouse Can Stretch an Inherited IRA

What are the options for an individual who inherits an IRA from their late spouse? This is the most flexible type of beneficiary of an IRA.

Did You Break Your SOSEPP?

If you have a SOSEPP and you break it, chances are it’s going to cost you. There can be cases where you might be forgiven, but not many.

Roth Conversion While Receiving 72t Payments

Can you do a Roth conversion while you are taking 72t payments from the traditional IRA? Yes, with some complications.

More reasons to keep on rolling (to an IRA, that is)

There are reasons in favor of rollover of 401(k) & reasons against. Here are a few reasons in favor of rollover that you might not think of.

IRA Early Withdrawal Exception: Disability to the IRA Owner

One IRA early withdrawal exception is for disability. But it has to be the IRA owner’s disability. It’s not enough that the spouse of the owner is disabled.

16 Ways to Withdraw Money From Your 401k Without Penalty

There are several ways you can withdraw money from your 401k without penalty.

Sam, You Made The Pants Too Short!

What can you do if your IRA has declined so much that it will no longer support your 72t payments as scheduled? You have a couple options to consider.

IRA Options for a Surviving Spouse Under Age 59 1/2

What options are available for distribution of an IRA if you’re a surviving spouse who is under age 59½? You have 3 options…

Things to Consider as You Set Up a SOSEPP

Do you know how to set up a SOSEPP (72t) plan? It’s got to be done correctly, otherwise you’ll face some big problems and penalties.

Public Safety Employee Retirement Plan Withdrawal at Age 50

There is a special exception to the retirement plan early withdrawal rules for a public safety employee, who may start withdrawals as early as age 50.

Higher Education Expenses Paid From an IRA

An IRA can be used to pay for higher education expenses. This avoids the penalty for early withdrawal that occurs if you’re under age 59 1/2.

Traditional IRA v. Roth IRA – Compare & Contrast

What are the differences and similarities between traditional IRA and Roth IRA? This article gives you the basics in a comparison and contrast.

Penalties for Changing SOSEPP

What are the penalties for changing your SOSEPP? If you don’t know, that’s another name for a 72t distribution. IRS has some severe penalties if you change your payment plan.

SOSEPP & How a QDRO Affects It

In addition to the 72(t) exception available for folks with a QDRO (see this post), there is also the question of how a QDRO impacts an established Series of Substantially Equal Periodic Payments (SOSEPP) – which, as we know, once established can only be changed one time. Although not definitive, below are summaries of three Private Letter Rulings (PLRs) that seem to suggest first of all that making the distribution is not subject to the 10% penalty when a QDRO or divorce decree is involved, pursuant to the regulation in Code section 72(t)(4)(A)(ii). Private Letter Rulings for SOSEPP 1) The transfer to a taxpayer’s spouse pursuant to a divorce decree of 50% of each of three separate IRAs owned by the taxpayer from which the taxpayer had already begun receiving “substantially equal periodic payments” did not result in a modification where the taxpayer’s spouse was two years younger and would commence […]

401(k) & Qualified Domestic Relations Orders (QDRO)

An exception to the 10% penalty on distributions from a qualified plan (but not an IRA, an IRA is split via a transfer incident to a divorce, which is not an automatic exception) Qualified Domestic Relations Order, or QDRO (cue-DRO).  A QDRO is often put into place as part of a divorce settlement, especially when one spouse has a qualified retirement plan that is a significant asset. What happens in the case of a QDRO is that the court determines what amount (usually a percentage, although it could be a specific dollar amount) of the qualified retirement plan’s balance is to be presented to the non-owning spouse.  Once that amount is determined and finalized by the court, a QDRO is drafted and provided to the non-owning spouse. This document allows the non-owning spouse to direct the retirement plan custodian to distribute the funds in the amount specified. In the case of a QDRO, the owning spouse will […]

Withdrawals from an IRA – death, disability, and 59 1/2

Three of the most common ways that you can withdraw funds from your IRA without penalty are: 1) reaching age 59½; 2) death; and 3) disability. Below is a brief review of each of these conditions for penalty-free withdrawal: Reaching Age 59½ When you reach age 59½, you can withdraw any amount from your IRA without penalty, for any reason. The only thing you have to remember is that you must pay ordinary income tax on the amount that you withdraw. This means that, once you have reached the date that is 6 months past your 59th birthday, you are free to make withdrawals from your IRA without penalty. You are not required to take distributions at this age (that happens at age 70½). Death Upon your death at any age, the beneficiaries of your account or your estate if you have not named a beneficiary, can take distributions from your IRA in […]

Early Withdrawal of an IRA – 72t Exceptions

If you have done much studying about IRAs and 401k plans, you probably know that there are several exceptions in the Internal Revenue Code that allow an early withdrawal from your IRA or 401k plan without the 10% penalty being imposed. The section of the IRC that deals with quite a few of these exceptions is called Section 72t (referred to as 72t for short), and there are several subsections in this piece of the Code. Each subsection, listed below, has specific circumstances that must be met in order to provide exception to the 10% penalty. Clicking on the link for each subsection will provide you with additional details about that exception. §72(t)(2)(A)(i) – age 59½ – this is the standard age allowing for penalty-free withdrawals from your IRA or 401k. In some cases there is an exception allowing for penalty-free withdrawals from a 401k at or after age 55; and […]

Early Withdrawal of an IRA – First Time Homebuyer

When you have money in an IRA, you are allowed to begin taking withdrawals once you’ve reached age 59½. But sometimes you’d like to take your money out earlier… and you’ve probably already discovered that there is a 10% penalty for taking funds out of your IRA early, right? So – is there a way to avoid that penalty? Perhaps as a first time homebuyer. There are several ways to withdraw IRA funds without penalty, as a matter of fact. There are several sections of the Internal Revenue Code that deal with these early distributions – including 72(t) which includes the first time homebuyer exception. We’ll explain the first time homebuyer exception in this post. First Time Homebuyer If you are buying, building, or re-building your first home (defined later), you are allowed to take a distribution of up to $10,000 (or $20,000 for a married couple) from your IRA to fund a portion of […]

Changing Your SOSEPP – Once, just once

If you’re taking (or planning to take) early distributions from an IRA using the 72(t) provision with a Series of Substantially Equal Periodic Payments, also known as a SOSEPP, you need to know a few things about this arrangement. For more information on SOSEPPs in general, see the article Early Withdrawal of an IRA or 401(k) – SOSEPP for more details. Generally when you establish a SOSEPP you have to stick with your plan for the longer of five years or until you reach age 59½ years of age. However, the IRS allows changing your SOSEPP one time, and only one time. And then, the rules only allow changing your SOSEPP from either the fixed annuitization method or the fixed amortization method to the Required Minimum Distribution method. This is the only exception allowed for changing your SOSEPP during its enforcement period, which is the later of five years after you started the SOSEPP or when […]