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I have been unable to find a definitive answer to my question about mid year rollovers and 72t distributions. I hope someone can help.
Both my wife and I (both will be 55 when retiring) plan on retiring and rolling our 403B monies into IRA's.
We plan to roll the 403B's into multiple IRA's so as to add to our
flexibility. We plan on withdrawing from the IRA's using 72(t) provisions
starting as soon as possible. The rollovers will occur in January and
February. What amount do we use to calculate the withdrawal amount since
there will be no balance in the IRA's on Dec. 31 of the previous year?

I would guess if I were to rollover the 403B monies into one IRA for each of us then I could use the Dec. 31 value of the 403B account. But I would like the flexibility of being able to fall back on a lesser RMD amount if circumstances warrant. That is why I would like to break the 403B monies into smaller IRA accounts. Thanks for your time and consideration.

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Chuck

 

To be honest I never heard of a 72T so this topic is beyond me and I am here beside you trying to learn. Would these sites be of any help? Seems like its a complicated thing and maybe you best seek a professional. Perhaps the company you plan to transfer your assets to can help.

 

http://www.gcbaonline.com/retirement/understanding-irs-72t-withdraws-rule-calculator

http://www.bankrate.com/calculators/retirement/72-t-distribution-calculator.aspx

 

Sorry I can't be much help but I am sure you will get other responses so stay tuned . Also you might post this on the Boglehead Forums https://www.bogleheads.org/forum/index.php

 

Tony

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Are you familiar with the age 55 exception for 403b plans? https://www.irahelp.com/slottreport/age-55-exception-10-early-distribution-penalty

Investopedia on early distributions from a 403b : http://www.investopedia.com/university/retirementplans/403b/403b3.asp

Vanguard’s information on 72t and IRAs: https://personal.vanguard.com/pdf/s164.pdf

I retired at age 56 and at age 57 took a set amount per month from my VALIC 403b for 5 years. What are your ages? Is this a possibility for you? It seems a lot easier than the 72t from an IRA which I'm not familiar with.

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While you didn't mention your age, I'll first mention that section(72)(t) does two things: First, it establishes the 10% penalty for distributions prior to age 59½. Second, it provides for a number of exceptions to that penalty. Thus, if you have already attained age 59½, the section is not applicable.

 

Also, as krow36 mentions, if you separate from service after you attain age 55, the 10% penalty does not apply to distributions taken from a 403(b). This exception does not apply, however, to distributions from IRAs even if the IRA was created by a rollover from a 403(b).

 

Now back to your question. When you begin taking distributions under the "substantially equal periodic payments" provision, the account balance used to calculate the distribution amount is the balance of the IRA at the time the distributions begin. Also, keep in mind two other things:

  1. The IRS provides three specific methods that you are permitted to use in calculating the amount of distribution. Be sure to use one of those methods.
  2. Once the distributions begin, you must continue until the later of 5 years or attainment of age 59½ and may not change the amount of the distribution. Discontinuation or changing the amount will result in all of the "forgiven" penalties to be recovered.

Hope this helps.

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Michael Devault, You state, "When you begin taking distributions under the "substantially equal periodic payments" provision, the account balance used to calculate the distribution amount is the balance of the IRA at the time the distributions begin."

 

Could you reference that. Everything I am seeing says I need to use the balance of the IRA on Dec. 31 of the previous year in figuring my SEPP amount.

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The rules are found it Rev. Rul. 2002-62. Specifically the provision defining account balance is reproduced, below. The ruling provides an example that uses the balance as of December 31 of the prior year, but it also states that it must be determined "in a reasonable manner based on the facts and circumstances." If the IRA didn't exist on the prior December 31, it would seem reasonable to use the balance at the time distributions begin, especially if you use either the fixed amortization or fixed annuitization method of determining the payment amount. If you use the required minimum distribution method, it would seem reasonable to use the current balance to determine the first year's distribution amount and the prior December 31 balance for subsequent years.

 

The account balance that is used to determine payments must be determined in a reasonable manner based on the facts and circumstances. For example, for an IRA with daily valuations that made its first distribution on July 15, 2003, it would be reasonable to determine the yearly account balance when using the required minimum distribution method based on the value of the IRA from December 31, 2002 to

July 15, 2003. For subsequent years, under the required minimum distribution method, it would be reasonable to use the value either on the December 31 of the prior year or on a date within a reasonable period before that year’s distribution.

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Michael Devault, Thank you for the info. So, If I were to rollover a $500,000 403b account into 5 separate $100,000 IRA accounts on say January 12th, and then take a SEPP distribution on March 1st. of the same year I could use the $100,000 as the basis of my calculation or any balance of the account between those 2 dates as the basis of my calculation?

 

On a side note, Is it OK to divide my annual calculated SEPP amount by 4 and take the amounts quarterly? (Fixed Amortization method)

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If you plan to use the fixed amortization method, it would probably be best to use the account value as of the date those distributions begin, March 1 in your example. The reason is because the results of that method yields a static amount that must be taken each and every year during the amortization period, so you'll likely want to figure that amount such that it will fully amortize the account.

 

While the Rev. Rul. states that the amortization method provides the annual amount to be distributed, I can't image the IRS objecting to taking that amount out quarterly, just as long as it's done consistently.

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Is there a reason that you are not interested in using the “age 55 exception” with your 403b rather than the 72t rule using IRAs to get the income flow you want? It would be instructive to know your thoughts. I realize the age 55 exception only works with the 403b of your current employer. And you need to be 55 when you separate from service, which you say you will both be. Is it an option for you?

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krow36...It all boils down to the number of options that are available in an IRA as compared to a 403B account. Having a brokerage account and the ability to buy individual stocks, etf's, and cef's give the IRA more flexibility in this area. The lesser fees within an IRA as compared to the mutual fund fees in the 403B would also factor into my reasoning. I am considering not rolling over the entire 403B balance so that I would have money available in an emergency if I needed it.

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