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72(t) Distributions - YouTube
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seventy-two t-distributions sometimes
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you can take penalty free early
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withdrawals from retirement accounts do
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you need to access your retirement money
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early maybe you just want to retire
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before you turn sixty and plan a
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lifelong income stream from the money
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you have saved and invested you may be
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surprised to know that the Internal
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Revenue Service allows you a way to do
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this provided you do it carefully
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usually anyone who takes money out of an
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IRA or a retirement plan prior to age 59
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and a half faces a 10% early withdrawal
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penalty on the distribution that isn't
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always the case however you may be able
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to avoid the requisite penalty by taking
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distributions compliant with Internal
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Revenue Code section 72 T section two
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while any money you take out of the plan
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will amount to taxable income you can
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position yourself to avoid that extra
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10% tax hit by breaking the early IRA or
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retirement plan distribution down into a
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series of substantially equal periodic
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payments se PPS
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these periodic withdrawals must occur at
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least once a year and they must continue
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for at least five full years or until
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you turn 59 and a half whichever period
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is longer optionally you can make SEP
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withdrawals on a monthly basis how do
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you figure out the SE PPS they must be
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calculated before you can take them
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using one of three IRS methods some
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people assume they can just divide the
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balance of their IRA or 401k by five and
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withdraw that amount per year but that
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is not the way to determine them it is
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wise to calculate your potential se PPS
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by each of these three methods when the
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math is complete you can schedule your
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SE PPS in the way that makes the most
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sense for you the required minimum
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distribution our md method calculates
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the set amount by dividing your IRA or
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retirement plan balance at the end of
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the previous year by the life expectancy
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factor from the IRS single life
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expectancy table joint life and last
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survivor expectancy table or uniform
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life table the fixed amortization method
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amortized is your retirement account
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balance into se PPS based on your life
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expectancy a variation on this the fixed
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annuitization method calculates SE PPS
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you
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your current age and the mortality table
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in Appendix B of Reverend ruling 2002 to
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62 if you use the fixed amortization or
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fixed annuitization method you are also
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required to use a reasonable interest
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rate in calculating the withdrawals that
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interest rate can't exceed more than 120
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percent of the federal midterm rate
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announced periodically by the IRS a lot
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to absorb
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it certainly is the financial
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professional you know can help you
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figure all this out and online
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calculators also come in handy
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bankrate.com in fact offers you a free
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72 t-distribution calculator there are
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some common blunders that can wreck a 72
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t distribution you should be aware of
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them if you want to shed your Lessie
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peepees if you are taking a CPP's from a
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qualified workplace retirement plan
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instead of an IRA you must generally
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separate from service that is quit
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working for that employer before you
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take them if you are 51 when you quit
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and start taking a CPP's from your
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retirement plan and you change your mind
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at 53 and decide you want to keep
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working you still have this retirement
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account that you are obligated to draw
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down through age 56 not a good scenario
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once you start taking se peepees you are
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locked into them for five consecutive
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years or until you reach age 59 and a
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half if you break that commitment or
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deviate from the set schedule or
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calculation method you have set then the
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IRS applies a 10% early withdrawal
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penalty to all the SE PPS you have
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already made plus interest the IRS does
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permit you to make a one-time change to
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your distribution method without penalty
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if you start with the fixed amortization
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or fixed annuitization method you can
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opt to switch to the RMD method you
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can't switch out of the RMD method to
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either the fixed amortisation or fixed
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annuitization methods however if you
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want or need to take 72 t distributions
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ask for help a financial professional
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can help you plan to do it right
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you
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