Retirement Planning - Early Distribution Calculator: The Internal Revenue IRS Code sections 72(t) and 72(q) allow for penalty free early withdrawals from retirement accounts - 401k and IRA withdrawals. These sections allow you to begin receiving money from your retirement accounts before you turn age 59 1/2 without the normal 10% premature withdrawal penalty. Use this distribution calculator to determine your allowable 72(t)/(q) Distribution/withdrawal and how it can help fund your early retirement. The IRS rules regarding early distributions are complex; please consult a qualified professional.
Retirement Planning - 72t Early Distribution Calculator: Here’s how it works. Assume you are still working but want to retire at the age of 55. First you stop working, then you rollover your 401(k) into an IRA. After the rollover is completed you apply for a 72(t) “equally substantial distribution”. The IRS will offer three optional payout amounts. The three IRS optional payout methods will tell you how much the “equally substantial distribution” will be based on your age, the age of your beneficiary, the amount of your 401(k) balance, the % rate used for the calculation and how long they expect you to live based on IRS's mortality table.
Reasonable interest rate - This is any rate less than or equal to 120% of the Federal Mid-Term rate for either of the two months immediately preceding the month in which the distribution begins. For January 2008, 120% of the Federal Mid-Term rate is 4.31%.
Substantially Equal Periodic Payments (SEPP) - The rules for 72(t)/(q) distributions require you to receive Substantially Equal Periodic Payments (SEPP) - distributions/withdrawals - based on your life expectancy to avoid a 10% premature distribution penalty on any amounts you withdraw. Payments must last for five years (the five-year period does not end until the fifth anniversary of the first distribution received) or until you are 59 1/2, whichever is longer. Further, the SEPP distributions amount must be calculated using one of the IRS approved methods which include:
Required minimum distribution method: This is the simplest method for calculating your SEPP distribution, but it also typically produces the lowest payment. It simply takes your current balance and divides it by your single life expectancy or joint life expectancy. Your payment is then recalculated each year with your account balance as of December 31st of the preceding year and your current life expectancy.
Fixed amortization method: With this method, the amount to be distributed annually is determined by amortizing your account balance over your single life expectancy, the uniform life expectancy table or joint life expectancy with your oldest named beneficiary.
Fixed annuitization method: This method uses an annuity factor to calculate your SEPP. This is one of the most complex methods. The IRS explains it as taking the taxpayer's account balance divided by an annuity factor equal to the present value of an annuity of $1 per month beginning at the taxpayer's age attained in the first distribution year and continuing for the life of the taxpayer.
In addition, the IRS ruled that you could change your distribution type one time without penalty from the Annuitized or Amortized methods to the Required Minimum Distribution method. This would allow account holders the option to move from a fixed payment type to a payment that fluctuates annually with the value of their account.
Account balance - The account balance used to determine the payment must be determined in a reasonable manner. For example, with a first distribution taken on July 15, 2003, it would be reasonable to determine the account balance based on the value of the IRA from December 31, 2002 to July 15, 2003. For subsequent years, the same valuation date should be used.
Your age - This is your current age. Use the age you will turn on your birthday for the year you are receiving the distribution.
Beneficiary age - This is your beneficiary's age.
Choose life expectancy tables - There are three different life expectancy tables that the IRS allows you to use when calculating your SEPP with the "Fixed Amortization" or the "Required Minimum Distribution" methods. It is important to note that once you have chosen a distribution method and life expectancy table, you cannot change either throughout the course of your distributions.
Investing and Retirement Planning: Certificates of deposit are one of the safest forms of saving money for the long term. Use this Bank CD Calculator to visually show you the long term return on investment you can expect based upon current bank CD rates. In addition, retirees and users planning for retirement can take advantage of our 401k Retirement Calculator.
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