72t Exceptions Explained
Completing your 72t early retirement distribution and documenting your IRS 72t exceptions correctly, will provide a stream of retirement income.
Do you have a 401(k), 403(b), TSP (Thrift Savings Plan) or a 457 plan?
If so, then a Rollover is something you need to know all about and may want to consider.
Rollers & Early Retirement Using 72(t) Distribution
Let’s cover some of the BASICS of 401(k) plans and other similar retirement plans, such as 403(b), TSP or 457 plans:
- Money contributed into these plans are usually “pre-tax dollars”, meaning this money was contributed before taxes. These plans also allow your money to grow “tax-deferred”, which means that you don’t pay taxes until you withdraw the money from the Retirement Plan. Contributions to plans can come from Employee salary reduction, from the Employer, or both.
- Employees are immediately 100% vested with their own contributions, and if/when they retire/quit/resign, they can ROLLOVER their account into an Individual Retirement Account/Annuity (IRA).
- Some plans offer direct loans, hardship loans and disability loan provisions, but not all plans.
- Withdrawals from any retirement plan: 401(k), 403(b), 457 plan or IRA’s are income taxable when you take the money out! If you are UNDER 59 ½ (except hardship cases and other special situations) there may be an “IRS Early Withdrawal 10% Penalty” as well. To AVOID the above mentioned additional 10% penalty, see how a 72t works.
- Retirement plans are established by your Employer, but are generally managed by a “Third-Party Administrator”, not your Employer (except some governmental plans). The company chosen as the “Administrator” can, and may change from time to time.
- TSP’s (Thrift Savings Plan) can also be “rolled over” into an IRA and a 72t can be set-up to provide a penalty-free income stream, prior to Age 59 ½, for any reason.
Do you have a 401(k), 403(b), TSP (Thrift Savings Plan) or a 457 plan?
If so, then a Rollover is something you need to know all about and may want to consider.
Rollers & Early Retirement Using 72(t) Distribution
Let’s cover some of the BASICS of 401(k) plans and other similar retirement plans, such as 403(b), TSP or 457 plans:
- Money contributed into these plans are usually “pre-tax dollars”, meaning this money was contributed before taxes. These plans also allow your money to grow “tax-deferred”, which means that you don’t pay taxes until you withdraw the money from the Retirement Plan. Contributions to plans can come from Employee salary reduction, from the Employer, or both.
- Employees are immediately 100% vested with their own contributions, and if/when they retire/quit/resign, they can ROLLOVER their account into an Individual Retirement Account/Annuity (IRA).
- Some plans offer direct loans, hardship loans and disability loan provisions, but not all plans.
- Withdrawals from any retirement plan: 401(k), 403(b), 457 plan or IRA’s are income taxable when you take the money out! If you are UNDER 59 ½ (except hardship cases and other special situations) there may be an “IRS Early Withdrawal 10% Penalty” as well. To AVOID the above mentioned additional 10% penalty, see how a 72t works.
- Retirement plans are established by your Employer, but are generally managed by a “Third-Party Administrator”, not your Employer (except some governmental plans). The company chosen as the “Administrator” can, and may change from time to time.
- TSP’s (Thrift Savings Plan) can also be “rolled over” into an IRA and a 72t can be set-up to provide a penalty-free income stream, prior to Age 59 ½, for any reason.
What is an IRA Rollover?
Generally, after a person retires, quits or is let go, they are given the option to “Rollover” their retirement plan(s) into a new company’s plan, if available, or into an IRA (Individual Retirement Account/Annuity).
Frequently, the choice is made to ROLLOVER into an IRA because of the flexibility and vast array of investment choices available.
Most retirement plans can be easily rolled into an IRA, which can invest in a variety of Mutual Funds, ETF’s, Stocks, Bonds, Alternative Investments or Annuities. However, there may be some charges and expenses to do this, as well as ongoing costs that should be considered. There may be surrender charges when you want to move some or part of your money as well. Check with your Financial Advisor and read the prospectus regarding any risks, charges and expenses.
What are some of my options when doing a rollover?
1. You can move/rollover all or PART of your plan into one or more IRA’s.
2. You can move/rollover all or PART of your plan into one or more companies and multiple IRA’s.
3. You can move/rollover all or PART of your plan into one or more IRA Mutual Funds and/or IRA Annuities.
4. You can move/rollover all or PART of your plan into Stocks, Bonds, etc. within an IRA account.
NOTE: Most plan administrators do NOT allow partial rollovers. It’s all or nothing in most cases. However, if you want to transfer your retirement money into more than one place, we would be pleased to show you a way to accomplish this. Just ask!
There are many options and choices. It takes the experience and wisdom of a knowledgeable Financial Advisor to know what is best in each particular scenario. Everyone is different and so are their goals, needs and desires. EMAIL us if you like and we can discuss YOUR SPECIFIC NEEDS! Get Your Personalized Consultation Today!
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72(t) Related Articles
Reasons for an Early Withdrawal Using 72(t)
A 72(t) early distribution will not be subject to the 10% additional early withdrawal tax in the following circumstances…
What is a 72t Distribution Penalty?
TIP: We have effectively set up 72t distributions for penalty free income many times throughout almost 50 years and this strategy works, IF DONE CORRECTLY.
TSP (Thrift Savings Plans) “Rollovers.” Is this allowed?
What is a TSP? The Thrift Savings Plan (TSP) is a defined contribution plan for U.S. Civil Service employees and retirees, as well as for members of the Uniformed Services. The TSP is one of three components of the Federal Employees Retirement System (FERS), the others being the FERS Annuity and Social Security. YES, these plans can be rolled into an IRA for potentially increased investing options, continued tax-deferred growth, and/or penalty-free distributions (INCLUDING a 72t at ANY age). To AVOID the above mentioned additional 10% penalty, see “How a 72t Works”. Email Us and we can discuss YOUR SPECIFIC NEEDS! Got A Question?
457 PLAN “Rollovers” & 72t
What are 457 plans? The 457 Plan is a type of Non-Qualified, Tax Advantaged Deferred Compensation Plan that is available for government and certain non-government employers in the United States. Can a 72(t) be set up from my 457 Plan money? Not all 457 Plans work the same. YES, as of January 1st, 2002 (due to the 2001 Tax Reconciliation Act), a 457 Plan may also be rolled into an IRA, AFTER YOU LEAVE THEIR EMPLOYMENT! You have to check with your Plan Administrator and have them check the WORDING of your specific plan (they differ widely). But in most cases, these plans can be rolled into an IRA for potentially increased investing options and continued tax-deferred growth, distributions and possibly better control. A 72t can be established for anyone at any age.
Past performance is not indicative of future results. Please review the prospectus for risk, fees and expenses. Annuities are NOT used for their tax-deferred growth when combined with an IRA. There are many other reasons for using an annuity, since an IRA already offers tax-deferred growth without the use of an annuity. Neither Spivak Financial Group nor Centaurus Financial Inc. offers legal advice. Please consult with a Tax Professional for your personal tax consequences. All guarantees are based on the financial strength and claims paying abilities of the company chosen for your annuity. Feel free to contact us for more detailed information.
Learn how we can help you with your retirement.
TSP (Thrift Savings Plans) “Rollovers.” Is this allowed?
What is a TSP? The Thrift Savings Plan (TSP) is a defined contribution plan for U.S. Civil Service employees and retirees, as well as for members of the Uniformed Services. The TSP is one of three components of the Federal Employees Retirement System (FERS), the others being the FERS Annuity and Social Security. YES, these plans can be rolled into an IRA for potentially increased investing options, continued tax-deferred growth, and/or penalty-free distributions (INCLUDING a 72t at ANY age). To AVOID the above mentioned additional 10% penalty, see “How a 72t Works”. Email Us and we can discuss YOUR SPECIFIC NEEDS! Got A Question?
457 PLAN “Rollovers” & 72t
What are 457 plans? The 457 Plan is a type of Non-Qualified, Tax Advantaged Deferred Compensation Plan that is available for government and certain non-government employers in the United States. Can a 72(t) be set up from my 457 Plan money? Not all 457 Plans work the same. YES, as of January 1st, 2002 (due to the 2001 Tax Reconciliation Act), a 457 Plan may also be rolled into an IRA, AFTER YOU LEAVE THEIR EMPLOYMENT! You have to check with your Plan Administrator and have them check the WORDING of your specific plan (they differ widely). But in most cases, these plans can be rolled into an IRA for potentially increased investing options and continued tax-deferred growth, distributions and possibly better control. A 72t can be established for anyone at any age.
Past performance is not indicative of future results. Please review the prospectus for risk, fees and expenses. Annuities are NOT used for their tax-deferred growth when combined with an IRA. There are many other reasons for using an annuity, since an IRA already offers tax-deferred growth without the use of an annuity. Neither Spivak Financial Group nor Centaurus Financial Inc. offers legal advice. Please consult with a Tax Professional for your personal tax consequences. All guarantees are based on the financial strength and claims paying abilities of the company chosen for your annuity. Feel free to contact us for more detailed information.
Learn how we can help you with your retirement.
Speak with a Professional before Initiating a Rollover or Using a 72t Distribution
Completing your 72t early retirement distribution and documenting your IRS 72t exceptions correctly, will provide a stream of retirement income. But, if it’s done incorrectly, possibly by withdrawing too much and you can end up broke! Plus, the IRS may assess the 10% penalty on all amounts withdrawn, if the IRA account runs out of money before the end of the 72t scheduled time frame. That’s the rule.
Therefore, it’s imperative you work with someone, who has experience with the entire 72t process. CD’s can not be used effectively as an investment vehicle for a 72t distribution.
Not all (Financial Advisors, CPA’s, Attorney’s or otherwise) know about this little known 72(t) IRS rule. Also, NOT ALL companies know how to do a 72t, or how to set it up properly, or even have the mechanical or electronic means available, to do such distributions! Very few fixed annuities will work (but some may) because most fixed and Indexed annuities do not allow withdrawals during the first year of the contract and/or greater withdrawals than the earnings growth. Also, most IRA owners want to withdraw more than the growth generated by most fixed and indexed annuities.
Effectively Structuring a 72(t) Distribution
We can provide you examples of the few that will work effectively. Just ask and we can e-mail that information to you. We have effectively set-up 72t distributions for income withdrawals prior to age 59 1/2 many times throughout our 50+ years and it works, if done correctly. It is completely legal and anyone (at any age) can use a 72t The most commonly used (effective) investment vehicles for a 72t are variable annuities.
One of the main reasons, is the fact that today’s variable annuities allow you to actively invest your money so it can continue to grow, offer diversification and protection, all at the same time, while you are pulling an income stream from it. Fixed accounts, stock portfolios, CD’s and MOST fixed annuities, are often not the most ideal for doing a 72t. The reason being, as stated previously, that the amount desired to be withdrawn from a 72t often does not adequately match the amount of growth or offer the appropriate amount to be withdrawn. Many companies and many advisors, simply do not know how to properly do a 72t. Work with someone who is experienced and knowledgeable in this very special area.
Planning to Use a 72t?
We have effectively set-up and administered 72t’s for income withdrawals prior to age 59 1/2 MANY TIMES throughout almost 50 years and it works, if done correctly. It is completely legal and ANYONE (at any age) can use a 72t. Once again, many companies and most advisors, simply do not know HOW to properly structure and administer a 72t. Work with a firm who is experienced, knowledgeable and specializes in this specific type of planning.
Would you like an ESTIMATE of what YOUR 401(k), TSP, 403(b), 457 plan or IRA might produce for an income, using a 72t for early withdrawals to eliminate the IRS penalty? Simply provide us: your age, your beneficiaries age, the amount of money in your retirement plan and using the current IRS rates with our 72t calculator, we will prepare an income estimate for you. FREE. No Obligation.
Get Your 72(t) Estimate Today!
NOTE: This early withdrawal provision also works for non-IRA annuities to eliminate the IRS 10% early withdrawal penalty. It’s called a 72(q) for non-qualified annuities and works the same as a 72t for IRA’s. Learn How a 72t Works or if you Got a Question?
NOTE: Investment return and principal value will fluctuate, and shares/units, when redeemed, may be worth more or less than their original cost. Past performance is no guarantee of future results. Dollar Cost Averaging does not assure a profit nor does it protect against loss in declining markets. The above reference is NOT an offer to sell a product or service. Neither Spivak Financial Group or Centaurus Financial Inc. offers legal advice. Please consult with a Tax Professional for your personal tax consequences.
Speak with a Professional before Initiating a Rollover or Using a 72t Distribution
Completing your 72(t) early retirement distribution and documenting your IRS 72t exceptions correctly, will provide a stream of retirement income. But, if it’s done incorrectly, possibly by withdrawing too much and you can end up broke! Plus, the IRS may assess the 10% penalty on all amounts withdrawn, if the IRA account runs out of money before the end of the 72t scheduled time frame. That’s the rule.
Therefore, it’s imperative you work with someone, who has experience with the entire 72(t) process. CD’s can not be used effectively as an investment vehicle for a 72t distribution.
Not all (Financial Advisors, CPA’s, Attorney’s or otherwise) know about this little known 72(t) IRS rule. Also, NOT ALL companies know how to do a 72t, or how to set it up properly, or even have the mechanical or electronic means available, to do such distributions! Very few fixed annuities will work (but some may) because most fixed and Indexed annuities do not allow withdrawals during the first year of the contract and/or greater withdrawals than the earnings growth. Also, most IRA owners want to withdraw more than the growth generated by most fixed and indexed annuities.
Effectively Structuring a 72(t) Distribution
We can provide you examples of the few that will work effectively. Just ask and we can e-mail that information to you. We have effectively set-up 72t distributions for income withdrawals prior to age 59 1/2 many times throughout our 50+ years and it works, if done correctly. It is completely legal and anyone (at any age) can use a 72t The most commonly used (effective) investment vehicles for a 72t are variable annuities.
One of the main reasons, is the fact that today’s variable annuities allow you to actively invest your money so it can continue to grow, offer diversification and protection, all at the same time, while you are pulling an income stream from it. Fixed accounts, stock portfolios, CD’s and MOST fixed annuities, are often not the most ideal for doing a 72t. The reason being, as stated previously, that the amount desired to be withdrawn from a 72t often does not adequately match the amount of growth or offer the appropriate amount to be withdrawn. Many companies and many advisors, simply do not know how to properly do a 72t. Work with someone who is experienced and knowledgeable in this very special area.
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