March 30, 2025 • 59 mins
One of the most frequent questions we get about retiring early is: 'How do I get money out of my retirement accounts before age 59.5, without paying the 10% penalty'? This episode answers that question and more with CPA and 72(t) expert, Bill Stecker. Bill is the founder of The Marble Group which specializes in federal income taxes and early retirement distributions. He's also the brilliant mind behind the website '72tcalc', hands down the most comprehensive resource we've found specifically focusing on 72(t)s. Cohost Jackie knows because she set up her own substantially equal periodic payments (SEPP) using IRS rule 72(t) in 2024 and will share some details of her first-hand experience.
If you've been fearful and confused about how 72(t)s work, fear no more! In this episode, we thoroughly break down everything you need to know in a way you've never heard before. We also discuss more than a dozen other ways the IRS allows you to legally avoid federal tax penalties for early withdrawals from your retirement accounts. To make sure we did this topic justice, we turned it into a 2-part series. This is part 1, and part 2 will be released next week; both packed with valuable insights and practical tips for anyone considering early retirement.
⚠️ Clarifications from this episode:
IRS ‘Rule of 50’ for public safety workers who retire after age 50 are exempt from the 10% early distribution penalty. It does include EMTs (Emergency Medical Technicians), however, it does not include all doctors and nurses (see IRS code linked below or read this article).
For medical expenses, the 10% early withdrawal penalty can be waived without itemizing your deductions if the amount of unreimbursed medical expenses is more than 7.5% AGI. (see IRS code linked below or read this article).
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Transcript
Episode Transcript
Available transcripts are automatically generated. Complete accuracy is not guaranteed.
(00:01):
Okay, Jackie.
We're known for being loquacious ortalkative, and this is an episode
where we definitely got carriedaway with a great topic on the
72 T exceptions and SEPP plan.
you may not think it's appropriate foryou, but we encourage our listeners to
(00:23):
listen to the entire episode, right?
Yeah, because for sure, and you know youlove to use your acronyms, the SEPP is
substantially equal periodic payment.
That is only one way to get money.
Out of your retirement account, the 4 59and a half without penalty, that is one of
the biggest problems for an early retiree.
(00:44):
So we go through all the differentexceptions and then we dive into and
really highlight the 72 T that a lot ofpeople are afraid of, even professionals.
So we found an expert.
He wasn't anywhere on social media,but we found an expert that spoke to.
Every single question we had that isgoing to be so valuable for our listeners.
(01:07):
This is a manifesto.
This is a treatise on the 72 T.We break it up into two hours.
We encourage you to listen to thefirst hour, take a break because
it's gonna give you a littlebit of brain overload and then.
There'll be another hour on the 72T and other topics a week from now.
yeah.
This is, definitely one ofthose reference episodes.
(01:29):
Me, as a big podcast listeners,there are certain things that I
bookmark or I save where I cango back and actually, reference
because it had so much information.
This is one of those episodes,bill, we could call it the.
I don't know the catching up to FIUniversity or catching up to FI 2 0 1,
but there is just so much information hereand we don't like to slide our audience.
(01:52):
So if we got more questions,we're gonna keep talking.
Well, this is applicable to thataudience that starts late but wants
to finish early like you, and wego over your case study basically.
So say.
You start at 45 and you wannaretire at 55, the 72 T is a perfect
bridge for you to 59 and a half, andyou'll find out why in this episode.
(02:15):
So stay tuned.
Here it comes.
A 72 T is, a section that is essentiallycrafted in reverse that is essentially
crafted in reverse that says, Hey,You got a 401k plan or you got an IRA
account, whatever it is, you, when youtake money out, will always be subjected
(02:38):
to the 10 percent surtax, comma,unless you qualify for an exception.
Okay, and so the first exceptionis the one we all know about.
Wait until you're 59 and a half.
That one's easy.
we got 19 more to go, of which 16 ormore I'm going to call transaction
(03:00):
oriented, meaning event oriented
It is when you are dealing with youroverall family economic unit experience
and whether you're in the business ofselling labor hours or whether you're
(03:21):
switching over and you're now goingto say, I'm stopping the sale of my
labor hour, I'm going to Instead,devote creating a replacement income
stream so I can pay the mortgage,go to the grocery, et cetera.
You best be looking at exceptionsfour and five, the starting
(03:44):
with six and running through 20.
Are they worth looking at?
Absolutely.
Yes.
72Ts are rule bound.
You can only use these formulas,and you've got to be equal, and
you've got to do it for five ormore years, and quite honestly, you
sometimes get sick of the rules.
(04:06):
What we've got here is a rule setthat probably the first word you
think of is fixed and it's true.
Your financial life is variable.
It's not fixed.
What you've got is oil andwater and they do not mix.
(04:30):
So, I think the valueadded here is pre building.
flexible moves to address either theopportunities or the crises that are
going to face you in a future yearthat you do not know about today.
(05:23):
hello, and welcome backto Catching Up to FI.
I'm Bill Yount with my beautifulco host Jackie Cummins Koski and
our beautiful guest who we'llintroduce here in a minute.
But Jackie, what's goingon in your world this week?
gosh, I got a lot of stuff going on.
One thing I didn't talk to you aboutis that I am going to be going to Bali
(05:43):
with Amy and I'm going to be speaking.
So I've got a big trip coming up inSeptember and I'm excited about that.
Well, that's very exciting.
I love it.
I love it.
You go to all these five fire events.
love them.
since I'm still a working stiff, Ican't get to Bali on that timetable.
But congratulations,that'll be a great talk.
(06:04):
It's very exciting.
Here in Knoxville, it's raining.
And I'm just excited to have a day offfrom work to talk to our guest, Mr.
72T.
Jackie, why don't you take a momentto introduce him to our audience and
then tell him what we're talking about
Yeah.
This is a new, person that you maynot have heard about, but I think
I mentioned to you, bill, last yearI set up my own 72 T, which simply
(06:27):
means I was able to get money out ofmy retirement account early because
unlike you, I am not 59 and a half.
So I found this guy that answeredevery single one of my questions
and I'm like, we have to get him on.
So, during this process, likeI said, I was digging for
anything I possibly could find.
I came across a website called 72 TCalc C A L C. So I found out who was
(06:51):
the creator and I said, you know what?
I chatted with him on the phone and Isaid, Would you mind coming on the show?
And he barely knew what a podcastwas or the fire movement, but
he was willing to entertain us.
So today we are thrilledto have a true expert.
On early retirement withdrawal strategies.
Joining us Bill Stecker.
(07:12):
He is a CPA since 1980.
I think I was in high school, maybe andthe visionary founder of the website
called 72 Calc, which focuses obviouslyon IRS code 72 T and we'll be talking
all about that so that you know whatthat is and you're not scared of it.
So it basically, like I said,allows you to take money out of your
(07:33):
retirement account without a penalty.
So I consider BillStecker 1 of those hidden.
geniuses.
And so glad that I found him.
But with decades of experiencein tax planning and retirement
strategies, Bill has become a trustedvoice for anyone navigating the
complexities of early retirement.
His innovative tools and insightson his website have helped
(07:55):
countless individuals unlock theirretirement funds without penalties.
Today, he's here to share hisknowledge with us and help us lean
into and solve a common problem.
For early retirees that manyother professionals shy away from.
So bill has spent over four decades inaccounting finance and tax related fields.
(08:17):
Further, he has particular in depthknowledge around the 72 Ts having
made many successful private letterruling requests and determination
letter requests, which we neverever hear about, but he's the guy.
So he's done all of this and he's here.
to enlighten us today.
So Bill Stecker, welcometo catching up to Fi
(08:37):
thank you so much for inviting me.
I hope going to be a enlighteningprocess for all your listeners And
hopefully i'll have less stage frightas we move through The process today.
Well, we love having podcast virgins onthe show and, Jackie went with him and got
him the right equipment, did a practicesession with him, and it's, often not
(09:02):
the case that we meet somebody of yourmaturity who has never done a podcast.
But honestly, I had never done apodcast until I was about 55, 56.
And when I started listeningto them in the early 50s, I
didn't know what they were.
So it's okay.
And my mother has never listened toor been on a podcast and she's 87.
(09:23):
So there's still a generation outthere that just sort of said, ah,
that's for the younger generation.
But look at you, you're adoptingtechnology even at your mature age.
So I'm impressed and thankyou for joining us today.
Where would you like to start?
All right.
Well, we got a lot now becauseboth of you guys name is bill.
(09:44):
I am now giving you my favorite nickname.
Bill Stecker.
I'm giving you the nickname of Mr 72 Tso that I don't get you mixed up and you
have so much expertise, so much knowledge.
I'm like, we need to bring that to you.
Our audience, because this is a topicwhere so many people shy away from even
professionals, even CPAs, even CFPs.
(10:06):
So let's start sort of in the beginning.
So you specialize, like I said, inthis topic that some people are afraid
of We'll talk about the basics of a72 T, but then we're going to talk
about all the other ways that youcan get money out of a retirement
account before you turn 59 and a half.
Because even for a late starters let'ssay they wake up at 40 or 45, they could
(10:31):
easily get to where they are ready to.
Or they have set themselves up to beable to walk away and live off their
investments within about 10 years.
That's what happened to me.
That's what happens to a lot of people.
So they still could be youngerthan that 59 and a half like me.
So that was a problem that I have.
so that we can right off the bat, takeaway one little fear and confusion.
(10:52):
Generally tell us whatis a 72 T this IRS code.
Okay.
I'd like to just spend three minuteson history This is all coming out
of the late 1970s, early 1980s.
So we only have about 40 years orthereabouts tax history, which is
(11:15):
short compared to other portionsof the internal revenue code.
and it's all 401k, 403b IRAprofit sharing plan oriented.
In the defined contribution department,I'm sorry, but for about 90 percent of
(11:40):
your audience or greater, the definedbenefit plan is dead, which was work
for one, maybe two employers and atage 60 or 65, you get a going away
party, a gold watch and 3, 247 a month.
it's gone becauseemployers can't afford it.
(12:04):
And so what we've got instead nowis defined contribution plans.
And that's what codesection 72 T is all about.
Now, there's some 20 exceptions in today'sworld that permit early distributions
from defined contribution plans without.
(12:27):
Fear of surtaxes and interestand penalties and, so forth.
And we can get into those when you tellme you're ready to hear about them.
Number four is substantiallyequal periodic payment plans.
That's a mouthful.
And I think the core of what we wantto be focusing on today, but let's
(12:48):
recognize that there's also 19 otherexceptions, some of which aren't too nice.
But at least they work.
And so as it relates to, sometimespeople just say, I'm going to launch
a 72 T plan my first reaction is,well, is that one or number 17 and
what they really mean is number four.
(13:10):
And going down that path, unfortunately,exception number four has the
title in the internal revenue code,substantially equal periodic payment.
And you read it and yougo, well, that's good.
What does that mean?
and Congress back in1986 said, we don't know.
(13:33):
They handed it off to thejoint committee on taxation.
And they said, we'll think about it.
And then they said, IRS, go figure it out.
That's interesting because I think thisis a great tool for those, say, in the 45
to 55 year old age group, which is a largeportion of our audience, and we'll talk
(13:54):
later about segregation of your IRAs, butthis tool can allow you to go part time
and use your 72T Exception 4 as part ofyour income and continue to work and have
that as the remainder part of your income.
And so, People need tolisten to this episode.
It's going to allow you to semi retire.
the breadth of reasoning.
(14:15):
Is amazing.
And I would actually stretch,I think you're right.
The core is age 45 to 55, give ittwo or three years in front and give
it two or three years on the back.
And I find a client basethat is extremely diverse.
And the first observation isnone of them need lessons.
(14:40):
on the advocacy of savings, they weretaught that before they were teenagers,
usually by their family environment.
Now they're caught in a bit of abox being told on the one hand.
Well, you really can't touch these,balances until you're 59 and a half.
(15:01):
And on the other hand, they sayto themselves, but wait a minute.
I have different sets of middle 40s tomiddle 50s objectives where I either
need whole or at least part help.
To go do something different than,I'll say it, stay in corporate
(15:24):
America for another 10 years.
Well, that's interestingbecause why 59 and a half?
And , is there a real reason behind that?
And what are the implicationsof 59 and a half?
number one, that's one of thegreat mysteries of Congress.
No one will own up tocoining 59 and a half.
(15:44):
Though, there are some hints,twofold, one is there is some federal
literature that related to the federalretirement plans from the 50s and
60s that had 59 and a half in it.
Another version is when you're 59 anda half, you are actuarially retired.
(16:06):
60. Okay.
So that no one will own up tobeing the author of 59 and a half.
I've looked, can't find it, but itgot stuck in code section 72 T. So
that functionally does is leave yourmoney in sort of, 401k or IRA jail and
(16:29):
we need to get out of jail free card.
And that's what we're talking about today.
Right, Jackie.
yeah, absolutely.
And I feel that way.
So I was bill, you mentioned thesweet spot for maybe setting up a 72
T would be around 45 to 55 for me.
I did it at 55 because obviously we'lltalk about the particulars of a 72 T, but
you have to continue it for the greater offive years or until you're 59 and a half.
(16:52):
So if you're You got along time, but was 55.
So all I'm looking at islike five or six years.
Right.
So that makes a difference.
And that's why I think that,you know, I agree with you.
That's the sweet spot.
so Mr. 72 T you said there's almost20 different ways , or exceptions
that will allow you to get moneyout of your retirement account.
(17:13):
Before you turn 59 and a half.
So we're going to dive into the 72 T part.
But now we know that that's notthe only thing we're going to
talk a little bit more aboutwhat are those other exceptions?
Because these may be the rightfit for some of our audience.
The 72 T might be.
The best fit for others.
So if you're listening to this,we're going to talk through these.
(17:36):
But if you're on YouTube, we'regoing to just show this list and I'll
include it in the show notes as well.
so let me go ahead and show thislist and let's talk through them
and maybe highlight some of theones that are the most important.
So what do you think is the mostcommon or one of the most accessible
ones to people in terms of gettingmoney out of their retirement
(17:58):
account early without penalty.
A 72 T is, a section that is essentiallycrafted in reverse that is essentially
crafted in reverse that says, Hey,You got a 401k plan or you got an IRA
account, whatever it is, you, when youtake money out, will always be subjected
to the 10 percent surtax, comma,unless you qualify for an exception.
(18:25):
Okay, and so the first exceptionis the one we all know about.
Wait until you're 59 and a half.
That one's easy.
we got 19 more to go, of which 16 or moreI'm going to call transaction oriented,
meaning event oriented, that are inthe general gist of things, unpleasant.
(18:49):
So exception number two, there'sno penalty if you're dead.
and so you say, well, that's pleasant.
But it doesn't affect me Exception numberthree is permanent and total disability
Only slightly better than exception numbertwo Then you go to things like Exception
(19:09):
number seven if a judge orders a tax levyOn your assets, there's no exception.
Well, how did you get therethat you've got a tax levy?
big medical expenses.
Quadros.
Those happen when husbandsand wives, split pants.
that was me.
(19:29):
When I got divorced I did havea quadro where my ex husband's
employer, they got a court order.
They had to split it up , Ididn't realize at the time, but
there was no 10 percent penalty.
So could have taken money out.
I didn't.
I rolled it over and I'm glad that I did.
But yeah.
So, quadro stand
Qualified domestic relations order.
Okay.
(19:49):
Okay.
We got to speak English sometimesbecause I would say that to people.
They're like, what does that mean?
Okay.
very simply, it's a sitting judgelistening to a divorce proceeding.
And usually both parties have agreedand present a document to the judge that
says qualified domestic relations order.
(20:13):
It's about three pages long, andhe basically looks at the attorneys
for he and she and says, you guysall agree on this quadro, right?
They say yes, and he signs it and itbecomes a court order, which is ordering
someone, some trustee, either froma Company 401k plan or, your IRA is
(20:38):
trustee that say Fidelity or Vanguardor, wherever they're being ordered
to take the assets and chop them upand put them in different buckets
(22:18):
so I have a questionBill, a clarification.
So I thought the quadros were onlythrough an employer sponsored plan.
Are you able to do this with an IRA?
Or is it called somethingdifferent if it's an IRA?
If it's an IRA, it falls undera spousal division of assets.
Okay.
It has the same effect in that, let'sjust face it in the 21st century
(22:44):
divorce, A is common, B, I believeessentially virtually all states have
passed some version of no fault divorce.
Right.
and so by the time this whole issue getsin front of a judge what we're really
talking about is division of assets andstabilization of income, particularly when
(23:10):
there's minors, kids under the age of 18.
and so quadro is kind of a genericword for the court stepping into the
situation, remembering that a divorceis a state action, whereas exception
number nine here is federal statute.
(23:34):
And the feds have basically said,when the state courts get involved,
we want to be uninvolved, letstates take over do what's right.
And we won't, at the federallevel, interfere with Sir, taxing
(23:54):
and penalizing distributions,
Okay.
Gotcha.
And, this list that we're looking at, itdoes have a column to identify are these,
workplace plans or qualified plans?
Does it apply to those ordoes it apply to an IRA?
So on this list, the QUADROs is saying nofor IRAs, but again, if it falls in the
federal, then that's why that's got a no.
(24:16):
But we will point out as you talkabout them, if it's different for an
IRA versus an employer workplace plan.
so let's, keep going.
What else you got
probably of the yes and no's here.
The number one most importantis number five, which deals
with separation of service.
and here there is a legal distinctionbetween a qualified plan of which
(24:40):
there are lots of different kinds.
We all call them just 401k plans.
That's good enough.
Okay.
And Iris, if you separate from serviceat age 55 or later, and the asset,
the target assets are in the plan,you can make surtax and interest free
(25:07):
withdrawals directly from the plan to you.
And it's okay.
All you need is a cooperative.
Plan administrator.
And so that generally willbreak down into two groups.
Small employers really tend to run 401kplans from a defensive perspective.
(25:35):
I have to run this plan for employeeretention purposes, but I really don't
want to be in the plan administrationbusiness, conversely, big plans
with thousands and thousands ofemployees will tend to be run by.
Big professional entities.
by the way, the top three areFidelity, Vanguard, and Schwab.
(25:58):
I mean, they just, they're so bigand they're so good at it that
they will permit more features in401k plans than small ones will.
So, whereas remember we talkedabout substantially equal periodic
payments being number four.
There's going to be a wholebunch of detail rules.
(26:20):
We'll get into in a little bit.
What's nice about exceptionnumber five is no rules.
Just take the money.
it becomes taxable incomein the year you distribute.
So that if you attain 55, Youdon't even have to be 55 yet in the
year of distribution, first yeardistribution, it's going to come out.
(26:43):
No problem.
you got to do is ask for it.
It's a much better route.
Then exception number four,because you don't have all of
these techie rules to work with.
Furthermore, if you're a first responder,55 becomes 50 and first responders
(27:04):
are all police, all firemen, FBI,DEA, just, it goes on and on and on.
Does that include doctors and nurses?
Oh, look at that, Bill.
so I have anotherquestion for you, Mr. 72T.
So I wonder, it's too bad that alot of employers, or I've heard
(27:25):
from some people to say, yes, I knowabout the rule of 55, which is what
it's commonly called, but would say,well, my employer doesn't allow that.
Now, my employer, it wasn't oneof the biggest ones, but it was
Empower, which is pretty big too.
They did offer the rule of 55 and Ileft at 49, so I didn't get to use it.
However, in your experience withyour client, how common is it to
(27:48):
have the rule of 55 as part of thecustodian's plan at an employer?
think you're asking, howoften do I find it applicable?
Yeah.
Well, it would have to be written intotheir summary plan description, correct?
Or summary plan agreement.
Generally, yes.
In that, are documents thatare hundreds of pages long
(28:11):
that no one ever wants to read.
About plans and trusts.
Okay, throw
them away.
That all gets reducedusually to a document.
It's called a summary plan description,
Okay.
15, 16, 18 pages, and so the realquestion is, who's the plan designer?
(28:33):
Plan designers are almost alwaysthe employer, and are they an
employer of 50 people or 5, 000?
And so they're taught in the lattercase, they're speaking with who's an
administrative professional, a group ofpeople who are going to be trustees and
custodians and administrators of the plan.
(28:56):
And they literally go down a checklist.
And say, do you want thisfeature in your plan?
Yes or no?
Ding da ding da ding, down we go.
And one of them is a separation ofservice withdrawals starting at age 55.
And it's a yes or no checkbox.
And if they check it, yes, boom.
(29:16):
It's in the plan.
And if they check it, no, it's not.
And literally, if they checked yes,And you're, like I said, you're a
first responder when you're over 50or you're over 55 and you're talking
to me, our conversation is a free andvery fast, you don't need my services.
(29:40):
You go use this other exception.
You're good to go.
Okay.
that's good to know.
So that rule of 50 or 55, BillYon, I knew about the rule of 55.
I didn't know the exception for age 50.
If you're a first responder,did you know that Bill?
Yeah, this is an important one because ifyou've been a saver as say an emergency
(30:01):
medicine physician and done well, butyou burn out and you want to access your
retirement plan because you know what?
I can't do this anymore.
Then this is a great rule for earlyretirement of physicians, nurses
or anybody that's gotten it right.
It wouldn't necessarily be a greatrule for the late starter population.
(30:22):
But, I had not heard of this as you asked.
And it's a great rule to get out there.
We got a few more to go throughso we can spend the second
half of the show on the 72T.
And we're at number 10 Mr. 72T.
Can you take us down the rest of the list?
And there's some new oneswe want to touch on too.
They're so new.
They're not even in the guide yet.
(30:42):
well, one of the most interesting thingsto me was you have terminal illness.
domestic abuse the federally declareddisaster areas that might have been
always, maybe we can talk about that for alittle bit, but the 1, 000 emergency fund.
So those are just a few, but Iguess so which one of these are
just through an employer plan?
(31:05):
the latest ones
Oh,
available to both.
So you'd be, we're going to be, yes, yes.
Good to know.
Yes.
Yes.
Okay.
Gotcha.
Gotcha.
Okay.
that's really good to know.
Okay.
and so, for example, the latest startingat 15 is this emergency expenses,
which only kicked in last year, 2024,where you can take a thousand dollars.
(31:30):
Small amount, very transactional and even,so what's the definition of emergency?
Right.
don't even know yet, because as isoften the case, Congress comes up
with good ideas, or maybe not so good,depending on your perspective, gets
a president to sign it, and it's law.
(31:52):
then they hand it off literally tothe general counsel's office of the
Internal Revenue Service and say,You guys figure it out and they just
haven't gotten around to it yet.
Similarly domestic abuse expense.
That one's a little easierto figure out in that.
You're probably paying somesets of professionals that are
(32:15):
in the domestic abuse business.
And it's capped at 10, 000 a year.
Terminal illness, similarly,fairly easy to figure out, I think.
And that would be some physician or groupof physicians has basically stamped your
patient file as terminally ill or, moreobviously, you might be in hospice and
(32:41):
that exception would apply next federallydeclared disasters again, not too
different and up to a pretty big cap, 22grand, which will likely get indexed as my
guess Where you're either in a federallydeclared disaster area, let's pick on
(33:02):
Florida and the Carolinas and Californiaand so forth, and you can essentially,
those are all federally declareddisasters, and you can get at your monies.
Again, without surtax.
Last but not least is going to belong term care insurance premiums.
(33:23):
But that doesn't kick in until 2026.
And again, give Congressa little bit of time.
I bet you they can find two orthree or four more new exceptions
in the next couple of years.
I think.
It is when you are dealing with youroverall family economic unit experience
(33:46):
and whether you're in the business ofselling labor hours or whether you're
switching over and you're now goingto say, I'm stopping the sale of my
labor hour, I'm going to Instead,devote creating a replacement income
stream so I can pay the mortgage,go to the grocery, et cetera.
(34:10):
You best be looking at exceptionsfour and five, the starting
with six and running through 20.
Are they worth looking at?
Absolutely.
Yes.
Just to make sure you haven't overlookedsomething that might be pertinent to
you, and or, and we'll get into thisin a bit, there's logic to setting
(34:34):
up multiple IRAs, and the two mostfrequent We used additional exceptions
are the health care education expenses,because those tend to be big bubble
bucks, kinds of problems opportunities.
And so you go grab those dollars outof a different IRA, while keeping
(34:57):
a quote unquote, a 72 T plan, whichis kind of like a perpetual income
stream running from a base IRA or two.
And then the last couple are alsointeresting too because home purchases
these days are, becoming more expensiveand you can take out money from your
well, you can take it out from anIRA, but not your qualified plan with
(35:20):
your employer in order to purchaseor put your down payment on a home,
correct?
It was
First time purchase onlyfirst time purchase.
I mean, I think I'd have to go backand look means you didn't purchase
a home in the last five years.
Yeah.
And I feel like you as a CPA knowmore than me, I thought it was
two years, but we're going toinclude that into the show notes.
(35:42):
and we'll figure out who's right.
And I would say the CPA might beright, but we'll include that in the
show notes as far as technically, howlong do you have to have not purchased
a primary home to qualify for that?
All of these, by the way, have bellsand whistles, Certain qualifications,
certain nuances, like the higher educationhigher education is another one of those
(36:03):
where you cannot do that through anemployer plan, but you can do it through.
And IRA and the same thingfor health insurance premiums.
I guess I have a question aboutthe health insurance premiums.
So if you have an IRA, you can usethat to pay health insurance premiums.
Can you elaborate on that?
Sure.
you recall your own tax returnand you most of the time you
(36:26):
walk through the steps of.
Doing what's called ScheduleA itemized deductions.
Oh, okay.
Now, same rules are going to apply as theSchedule A itemized In that to qualify for
this exception, two things have to happen.
It needs to be aqualified medical expense.
(36:51):
Number one, and that haspretty broad definition.
And I think we all know what those are.
the second test is it has to bequalified medical expenditures in
excess of seven and a half percentof your adjusted gross income.
That's the first little subtraction
(37:12):
in the top section on the, schedule A.
And so.
So then all kinds of medical expenses,I don't care what doctor you paid.
I don't care what hospital you paid.
I don't care whose premiums youpaid, you're a cooperating premium
(37:32):
in a, corporate health insuranceplan, or whether you're already
purchasing through, I call themthe state auction medical plans.
All of that are consideredqualified medical expense.
And you just total themup, you subtract 7.
5 percent of AGI.
(37:53):
Any excess with unlimited dollarscomes out under this exception.
Okay.
So I got a quiz question foryou because obviously only take
advantage of that particularthing if you itemize your taxes.
Okay.
Versus taking the standard deduction.
Okay.
What percentage of people, let's sayin 2024 or 2023 even what percent
(38:18):
use the standard deduction versus theitemized deduction on their taxes?
Bill, you can't answer.
about 80%
All right, so Bill is raising his hand.
What was your answer, Bill?
Well, I'm going to believe theCPA, so Bill Stecker, you win.
80%. I don't know that we need todebate the real difference there.
(38:40):
So the point is, right, that mostpeople do not itemize, so they may
not be able to take advantage of that.
That's why I wanted alittle more clarification.
And I guess the last two that I thinkare worth mentioning are qualified
reservists and child birth and adoption.
Both of those.
would apply to an IRA and aworkplace retirement plan.
(39:03):
Right.
are new ones.
Those are new
Is it possible to take a portion ofyour qualified plan, roll it over
into an IRA and then use this for theones that say no for the qualified
If
you, well, a couple, I'llgive you a qualified yes.
In that, a couple thingswould have to happen.
One, generally speaking, I don't carewhat kind of qualified plane you're in.
(39:29):
In order to get a buck out, youhave to separate from service.
So the old qualified plans wouldbe amenable to this, right?
And we bounce jobs.
So the old ones, I guessyou could do this with.
Theoretically, yes.
Then, let's say you don't.
need all of it.
You just need some of it.
(39:50):
Then, again, you need acooperative plan administrator.
Let's say you have 50k sittingin a, let's call it a dormant
401k plan from 20 years ago.
And it's just sitting there.
It's invested in howeveryou've so directed it.
And you say, Oh, I want to use anexception that's only available to an IRA.
(40:15):
Your choices would be essentially twofold.
One, you've alreadyseparated from service.
So that old 50 K 401k balance is mobile.
And you can either do what's calleda trustee to trustee transfer of 100
percent of it from 401k land to IRAland, or you can just do part of it.
(40:42):
Depending upon what the planadministrator tells you,
Okay.
Well, there's just like HSAs, there's lotsof little hacks, tricks, and loopholes,
and we may be getting into the weeds,but I think this has been very important.
Jackie, we should probably move onto the 72T, as that is the crux and
the meat of this presentation today,
(41:02):
Yeah.
Yeah.
And like you said, it was worthgoing through these because we're
not saying that the 72 T is foreverybody, but let's kind of hit other
things that you should look at inorder to make this type of decisions.
That's what I had look at.
So Mr. 72 T, we'll get into, thedifferent criterias of setting
up a 72T, the different options.
(41:23):
But I guess initially would behow does one determine whether or
not the 72 makes sense to them?
how do you approach it with your clients?
Let's talk about the planning and strategyaround doing something like a 72T.
probably the easiest way to thinkof it is you have been through a
(41:44):
progression of paid jobs somewhere.
And in today's world,collect deferred accounts.
As a collection in a file drawerand they can be private companies,
public service, 403B plans thatthey're just all over the ballpark.
(42:07):
Think of saying, I'm going to takethis whole menagerie of account types
and I'm going to shove them all.
Into an IRA account, one IRA account,pick the brokerage of your choice
and there's the money 400, 000,600, 000, 800, 000 million dollars.
(42:29):
It is what it is and you've accumulatedall of those assets in one place.
Our first step is to do apiece of real easy math.
by the way, earlier on youwere talking about people are
afraid of the mathematics here.
Don't be.
The fear of the math involved is nonsense.
(42:52):
Almost everybody todayruns a personal computer.
Almost everybody today has got MicrosoftSuites or Microsoft 365 or, Even uses
some, Google products, which are nothingmore than toned down Microsoft products.
(43:12):
It's the equal PMT function in Excel,gives you everything you need to know.
And you put in an interest rate, put ina term, which is your life expectancy.
And you put in the dollar amount ofthe IRA and it gives you a number
back, which is about in today'soperating environment is right around
(43:37):
the six to six and a half percent.
Of the total IRA becomes yourceiling qualified distribution.
so let's say you have 800 Kyour ceilings, 50 K. We figured
that out in about 12 seconds.
And if that fits.
(43:59):
Maybe we continue to have a conversationand do some additional planning.
Conversely, if you say, I'm sorry, I needa hundred thousand dollars a year to make
my family function as an economic unit.
My response is I can't helpyou go get another job.
(44:19):
well, you're right.
The math part can be pretty easy.
And will drop this in the shownotes, but Sean Mulaney, he's
another friend of the show.
He's a young CPA.
He's a young buck compared toyou, but he's a smart guy.
And he, Has a video that he didshowing how to use a Google sheet
in order to calculate your 72 T.
(44:39):
I just copied that overand I started with that.
And then there's a bunch of otheronline calculators and I'll drop the
ones in the show notes that I use.
So you're right.
The math part very doablehas become very easy.
And again, step throughsome of the other nuances.
So you take them through all thosescenarios before you ever go.
arrive to saying, I think the72 T is the right fit for you.
(45:03):
and I want to add on a newconcept that 72Ts are rule bound.
You can only use these formulas,and you've got to be equal, and
you've got to do it for five ormore years, and quite honestly, you
sometimes get sick of the rules.
What we've got here is a ruleset that probably the first
(45:29):
word you think of is fixed
And it's true.
Your financial life is variable.
It's not fixed.
What you've got is oil andwater and they do not mix.
So, I think the valueadded here is pre building.
(45:54):
flexible moves to address either theopportunities or the crises that are
going to face you in a future yearthat you do not know about today.
And if you start working the puzzle, andit is a bit of a puzzle palace, we can
(46:18):
pre build flexible moves so that let'stake a real obvious one, a family member.
is in, has a serious health emergency.
That is either you either don't haveinsurance, or you do have insurance, but
(46:40):
for whatever reason gets classified bysome insurance company as not covered.
It's happening every day today.
And so you say to yourself,well, I'm sorry, can't pay for
that medical set of procedures.
That's not one of the alternatives that isin your vocabulary talking to your family.
(47:05):
maybe you have to cause 100,000 or a quarter of a million
dollars to appear to pay rightfolks to solve the medical crisis.
How do you do it?
Well, if you have just one IRA, onedistribution plan you're probably stuck.
(47:27):
If you have two or three IRAs and you havereserve liquidity, and reserve liquidity
also takes on multiple attributes.
It says, Oh, I can either make a bigdent in this crisis, or maybe I can
(47:49):
completely solve this crisis all thebetter without disturbing the 72 T plans.
I started.
Three years ago.
Keep them running, keep themsafe, so that surtaxes interest
and penalties don't apply.
(48:09):
what you're saying here actually is veryimportant and the way I understood it
from your book is you've got to calculateyour fixed expenses, your baseline fixed
expenses and you can 72T those in one IRAand you can use the second IRA as your
variable expenses where these big swingsin your expense needs can be taken from.
(48:31):
Is that
That's very close to being correct.
Whether you use fixed variable or whetheryou use, uncontrollable controllable.
I think you get to the same bucketsof expense annually and, through time.
But yes, exactly that.
and then also I'm suggestingthe need for a third bucket.
(48:54):
The third bucket could be a third IRA.
It could be just an after taxbrokerage account from your
investment efforts of previous years.
A third bucket for liquidity couldbe you own your home, but you have
a standby home equity line of creditfor 300, 000, which you have not used.
(49:16):
Because, Nothing has presenteditself that required its use.
And so in today's world, Iliterally suggest that we
tackle three different buckets.
The first two, moreoften than not, are IRAs.
Number three can be a mixtureof other stuff so that we can
(49:37):
handle what life brings us withoutdisturbing buckets one and two.
Yeah, so basically you're sayingdon't 72T or SEP your entire
IRA because that leaves you
vulnerable.
So,
So, I have a, additional question.
So, a lot of times, as an alternative to a72T, especially if it's somebody a little
(49:58):
bit younger, they will incorporate, like,the Roth IRA ladder, and I know that kind
of, you have to, it has to season for fiveyears when you do those Roth conversions,
but , do you have any, I guess thoughtsaround the right time to use a 72T?
Roth conversion ladder versus a 72 T.
(50:21):
I believe that let's just take all ofthe qualified plan stuff, the 401ks,
the 403bs, the traditional IRAs, andthere's been a consistent message
actually coming from the government,as well as employers, as well as the
whole financial press, and that messagehas always been save early, save often.
(50:48):
and you will be blessed witha nest egg of a material size.
Let's just say somewhere in your fifties.
Okay.
That sum of assets and the way itgrew was really good news for decades.
(51:09):
Now we've got something called an RMD.
Starts at age 73 at the moment.
I think that one's gonna get kickedto maybe 75 in the near future.
But the very structures of theseplans that you have been contributing
(51:29):
to and your employers beenputting in as well, We're great.
They just became your worst enemybecause of, let's say, hitting age 75.
and if you don't tackle this problemtoday, remember that in general,
(51:51):
these big asset pools are going todouble every seven to eight years.
So let's just, you're 55,you got a million dollars.
And there's 20 years to age 75.
That means you're going to have 8million when you're 75 years old,
because it's going to double twiceonce to twice that get the math.
(52:13):
And all of a sudden youcan stand there at age 75.
And say to yourself,now I got two problems.
I've got required minimum distributionsthat look like 300, 000 a year,
which just blew me through aboutsix tax brackets where I was.
(52:36):
And I'm nudging up against thefederal estate tax exclusion, which is
currently just a touch under 14 million.
Now, lots of people won't face this,but there's a solution to which you
hinted, but it needs to be launched, notnecessarily in your 50s, but certainly in
(52:58):
your 60s, which is the free period fromage 60 to 75 of saying, I'm going to build
a layer cake of Roth conversion layers.
Now, there's, theory and goodmath on, well, how big's a layer?
Should it be 5, We can figure that out.
(53:21):
Now, can you start earlier?
Sure you can.
If you've got a set of plans providingincome and you're saying to yourself
and I got something left over.
should I start Roth conversions inlower tax brackets in my mid fifties?
(53:42):
The answer is yes if it's there.
If it's not there don't worry about it.
let's get through this box.
Of the fixed plan five year set ofrules hit that 59th and a half or
60th birthday Shut the plans downreplan and definitely build in 15
(54:05):
years of Roth conversion layers
I have a question, please.
So, we talk about 45 to 55 beingthe sweet spot, give or take.
Should you start a 72T,Exception 4, SEPP plan?
After 55 or is that a moot pointbecause you're going to turn 59 and
a half And what happens to a 72 tplan if you start it later and it?
(54:29):
extends beyond 59 and a half
Well, I got a multi part answer there.
if you just turned 55 or you justturned 56, or maybe even 57, no big
deal, go ahead and start the plan.
Even though it's going to stretch beyond59 and a half, get to hit the full five.
(54:50):
Meaning five times 365 number of days.
By the time you're in your 57, thenI'm going to challenge you and say, do
you really want to start a plan that isyour, so to speak, you're going to be.
(55:10):
fence straddling with two years hungdown below 59 and a half and three years
above 59 and a half, you're almost betteroff looking for a different source of
income, including just even borrowing yourliving expense to hit the 59th and a half
birthday so that these rules don't stretchuntil you're say 62 and a half or 63.
(55:37):
Yeah, so that makes sense.
And the reason why Bill is askingthat question is because remember,
one of the rules of the 72 T is thatit has to continue for five years.
Or 59 and a half, whichever is longer.
So if you're starting it at 57, thenyou have to do it for five years.
And then when we are mentioningthe acronym S. E. P. P.
that stands for Bill Yount.
(55:59):
What does S. E. P. P. stand for?
Substantially equal periodic payments.
Yes
great.
Yes, you got it right.
Yeah.
Ding,
ding, ding, ding, ding.
So I just sometimes when we useacronyms and stuff, people are
like, what are they talking about?
Especially if they skipped over a section.
So I just wanted to justhave a reminder of that.
So I guess what I gatherfrom what you're saying Mr.
(56:20):
72 T is that the, IRS Rule 72T and Roth Conversion Ladder.
Those do not have tobe mutually exclusive.
You can actually use them inconjunction with each other.
You can use both of them.
It's not one
Sure.
It doesn't have to be
Sure.
Because in general, the whole concept, Imean, thank God for Senator Roth in 1998.
(56:42):
That's why it's called a Roth conversion,
Right.
or a Roth IRA.
The whole game plan in Rothconversions is tax bracket management.
Which is a lifetime issue, not 10years, not 20, not even a little five
year and we're talking about set plans.
(57:04):
That's just a short term issue to hitfive years or 59 and a half and, you'll
get there quick enough and then tackleRoth conversion layers head on the target
being that at least from 60 to 75, youput in place a regimen that on your
(57:27):
75th birthday, you're You're standingthere and you say, Oh, look at this.
Remember 15 years ago when 90percent plus of my liquid investable
assets were in deferred accounts.
IRAs, the 401ks, et cetera.
The teeter totter was tilted likethis, and then each year you cause
(57:52):
the teeter totter to change untilon your 75th birthday, you go, gee.
I don't have any RMDs.
You say, well, why not?
Just because my IRAs are gone.
All I got left is aftertax accounts and Roth.
Yeah, you're not coming to that tax bomband we'll probably do another episode,
(58:13):
you know, wholly on Roth conversionsFolks want to warn you that we want to
make this a comprehensive 72 t episodesSo we're going to go a little long today.
So stay with us
Okay, Jackie.
We're known for being loquacious ortalkative, and this is an episode
where we definitely got carriedaway with a great topic on the
72 T exceptions and SEPP plan.
you may not think it's appropriate foryou, but we encourage our listeners to
(00:23):
listen to the entire episode, right?
Yeah, because for sure, and you know youlove to use your acronyms, the SEPP is
substantially equal periodic payment.
That is only one way to get money.
Out of your retirement account, the 4 59and a half without penalty, that is one of
the biggest problems for an early retiree.
(00:44):
So we go through all the differentexceptions and then we dive into and
really highlight the 72 T that a lot ofpeople are afraid of, even professionals.
So we found an expert.
He wasn't anywhere on social media,but we found an expert that spoke to.
Every single question we had that isgoing to be so valuable for our listeners.
(01:07):
This is a manifesto.
This is a treatise on the 72 T.We break it up into two hours.
We encourage you to listen to thefirst hour, take a break because
it's gonna give you a littlebit of brain overload and then.
There'll be another hour on the 72T and other topics a week from now.
yeah.
This is, definitely one ofthose reference episodes.
(01:29):
Me, as a big podcast listeners,there are certain things that I
bookmark or I save where I cango back and actually, reference
because it had so much information.
This is one of those episodes,bill, we could call it the.
I don't know the catching up to FIUniversity or catching up to FI 2 0 1,
but there is just so much information hereand we don't like to slide our audience.
(01:52):
So if we got more questions,we're gonna keep talking.
Well, this is applicable to thataudience that starts late but wants
to finish early like you, and wego over your case study basically.
So say.
You start at 45 and you wannaretire at 55, the 72 T is a perfect
bridge for you to 59 and a half, andyou'll find out why in this episode.
(02:15):
So stay tuned.
Here it comes.
A 72 T is, a section that is essentiallycrafted in reverse that is essentially
crafted in reverse that says, Hey,You got a 401k plan or you got an IRA
account, whatever it is, you, when youtake money out, will always be subjected
(02:38):
to the 10 percent surtax, comma,unless you qualify for an exception.
Okay, and so the first exceptionis the one we all know about.
Wait until you're 59 and a half.
That one's easy.
we got 19 more to go, of which 16 ormore I'm going to call transaction
(03:00):
oriented, meaning event oriented
It is when you are dealing with youroverall family economic unit experience
and whether you're in the business ofselling labor hours or whether you're
(03:21):
switching over and you're now goingto say, I'm stopping the sale of my
labor hour, I'm going to Instead,devote creating a replacement income
stream so I can pay the mortgage,go to the grocery, et cetera.
You best be looking at exceptionsfour and five, the starting
(03:44):
with six and running through 20.
Are they worth looking at?
Absolutely.
Yes.
72Ts are rule bound.
You can only use these formulas,and you've got to be equal, and
you've got to do it for five ormore years, and quite honestly, you
sometimes get sick of the rules.
(04:06):
What we've got here is a rule setthat probably the first word you
think of is fixed and it's true.
Your financial life is variable.
It's not fixed.
What you've got is oil andwater and they do not mix.
(04:30):
So, I think the valueadded here is pre building.
flexible moves to address either theopportunities or the crises that are
going to face you in a future yearthat you do not know about today.
(05:23):
hello, and welcome backto Catching Up to FI.
I'm Bill Yount with my beautifulco host Jackie Cummins Koski and
our beautiful guest who we'llintroduce here in a minute.
But Jackie, what's goingon in your world this week?
gosh, I got a lot of stuff going on.
One thing I didn't talk to you aboutis that I am going to be going to Bali
(05:43):
with Amy and I'm going to be speaking.
So I've got a big trip coming up inSeptember and I'm excited about that.
Well, that's very exciting.
I love it.
I love it.
You go to all these five fire events.
love them.
since I'm still a working stiff, Ican't get to Bali on that timetable.
But congratulations,that'll be a great talk.
(06:04):
It's very exciting.
Here in Knoxville, it's raining.
And I'm just excited to have a day offfrom work to talk to our guest, Mr.
72T.
Jackie, why don't you take a momentto introduce him to our audience and
then tell him what we're talking about
Yeah.
This is a new, person that you maynot have heard about, but I think
I mentioned to you, bill, last yearI set up my own 72 T, which simply
(06:27):
means I was able to get money out ofmy retirement account early because
unlike you, I am not 59 and a half.
So I found this guy that answeredevery single one of my questions
and I'm like, we have to get him on.
So, during this process, likeI said, I was digging for
anything I possibly could find.
I came across a website called 72 TCalc C A L C. So I found out who was
(06:51):
the creator and I said, you know what?
I chatted with him on the phone and Isaid, Would you mind coming on the show?
And he barely knew what a podcastwas or the fire movement, but
he was willing to entertain us.
So today we are thrilledto have a true expert.
On early retirement withdrawal strategies.
Joining us Bill Stecker.
(07:12):
He is a CPA since 1980.
I think I was in high school, maybe andthe visionary founder of the website
called 72 Calc, which focuses obviouslyon IRS code 72 T and we'll be talking
all about that so that you know whatthat is and you're not scared of it.
So it basically, like I said,allows you to take money out of your
(07:33):
retirement account without a penalty.
So I consider BillStecker 1 of those hidden.
geniuses.
And so glad that I found him.
But with decades of experiencein tax planning and retirement
strategies, Bill has become a trustedvoice for anyone navigating the
complexities of early retirement.
His innovative tools and insightson his website have helped
(07:55):
countless individuals unlock theirretirement funds without penalties.
Today, he's here to share hisknowledge with us and help us lean
into and solve a common problem.
For early retirees that manyother professionals shy away from.
So bill has spent over four decades inaccounting finance and tax related fields.
(08:17):
Further, he has particular in depthknowledge around the 72 Ts having
made many successful private letterruling requests and determination
letter requests, which we neverever hear about, but he's the guy.
So he's done all of this and he's here.
to enlighten us today.
So Bill Stecker, welcometo catching up to Fi
(08:37):
thank you so much for inviting me.
I hope going to be a enlighteningprocess for all your listeners And
hopefully i'll have less stage frightas we move through The process today.
Well, we love having podcast virgins onthe show and, Jackie went with him and got
him the right equipment, did a practicesession with him, and it's, often not
(09:02):
the case that we meet somebody of yourmaturity who has never done a podcast.
But honestly, I had never done apodcast until I was about 55, 56.
And when I started listeningto them in the early 50s, I
didn't know what they were.
So it's okay.
And my mother has never listened toor been on a podcast and she's 87.
(09:23):
So there's still a generation outthere that just sort of said, ah,
that's for the younger generation.
But look at you, you're adoptingtechnology even at your mature age.
So I'm impressed and thankyou for joining us today.
Where would you like to start?
All right.
Well, we got a lot now becauseboth of you guys name is bill.
(09:44):
I am now giving you my favorite nickname.
Bill Stecker.
I'm giving you the nickname of Mr 72 Tso that I don't get you mixed up and you
have so much expertise, so much knowledge.
I'm like, we need to bring that to you.
Our audience, because this is a topicwhere so many people shy away from even
professionals, even CPAs, even CFPs.
(10:06):
So let's start sort of in the beginning.
So you specialize, like I said, inthis topic that some people are afraid
of We'll talk about the basics of a72 T, but then we're going to talk
about all the other ways that youcan get money out of a retirement
account before you turn 59 and a half.
Because even for a late starters let'ssay they wake up at 40 or 45, they could
(10:31):
easily get to where they are ready to.
Or they have set themselves up to beable to walk away and live off their
investments within about 10 years.
That's what happened to me.
That's what happens to a lot of people.
So they still could be youngerthan that 59 and a half like me.
So that was a problem that I have.
so that we can right off the bat, takeaway one little fear and confusion.
(10:52):
Generally tell us whatis a 72 T this IRS code.
Okay.
I'd like to just spend three minuteson history This is all coming out
of the late 1970s, early 1980s.
So we only have about 40 years orthereabouts tax history, which is
(11:15):
short compared to other portionsof the internal revenue code.
and it's all 401k, 403b IRAprofit sharing plan oriented.
In the defined contribution department,I'm sorry, but for about 90 percent of
(11:40):
your audience or greater, the definedbenefit plan is dead, which was work
for one, maybe two employers and atage 60 or 65, you get a going away
party, a gold watch and 3, 247 a month.
it's gone becauseemployers can't afford it.
(12:04):
And so what we've got instead nowis defined contribution plans.
And that's what codesection 72 T is all about.
Now, there's some 20 exceptions in today'sworld that permit early distributions
from defined contribution plans without.
(12:27):
Fear of surtaxes and interestand penalties and, so forth.
And we can get into those when you tellme you're ready to hear about them.
Number four is substantiallyequal periodic payment plans.
That's a mouthful.
And I think the core of what we wantto be focusing on today, but let's
(12:48):
recognize that there's also 19 otherexceptions, some of which aren't too nice.
But at least they work.
And so as it relates to, sometimespeople just say, I'm going to launch
a 72 T plan my first reaction is,well, is that one or number 17 and
what they really mean is number four.
(13:10):
And going down that path, unfortunately,exception number four has the
title in the internal revenue code,substantially equal periodic payment.
And you read it and yougo, well, that's good.
What does that mean?
and Congress back in1986 said, we don't know.
(13:33):
They handed it off to thejoint committee on taxation.
And they said, we'll think about it.
And then they said, IRS, go figure it out.
That's interesting because I think thisis a great tool for those, say, in the 45
to 55 year old age group, which is a largeportion of our audience, and we'll talk
(13:54):
later about segregation of your IRAs, butthis tool can allow you to go part time
and use your 72T Exception 4 as part ofyour income and continue to work and have
that as the remainder part of your income.
And so, People need tolisten to this episode.
It's going to allow you to semi retire.
the breadth of reasoning.
(14:15):
Is amazing.
And I would actually stretch,I think you're right.
The core is age 45 to 55, give ittwo or three years in front and give
it two or three years on the back.
And I find a client basethat is extremely diverse.
And the first observation isnone of them need lessons.
(14:40):
on the advocacy of savings, they weretaught that before they were teenagers,
usually by their family environment.
Now they're caught in a bit of abox being told on the one hand.
Well, you really can't touch these,balances until you're 59 and a half.
(15:01):
And on the other hand, they sayto themselves, but wait a minute.
I have different sets of middle 40s tomiddle 50s objectives where I either
need whole or at least part help.
To go do something different than,I'll say it, stay in corporate
(15:24):
America for another 10 years.
Well, that's interestingbecause why 59 and a half?
And , is there a real reason behind that?
And what are the implicationsof 59 and a half?
number one, that's one of thegreat mysteries of Congress.
No one will own up tocoining 59 and a half.
(15:44):
Though, there are some hints,twofold, one is there is some federal
literature that related to the federalretirement plans from the 50s and
60s that had 59 and a half in it.
Another version is when you're 59 anda half, you are actuarially retired.
(16:06):
60. Okay.
So that no one will own up tobeing the author of 59 and a half.
I've looked, can't find it, but itgot stuck in code section 72 T. So
that functionally does is leave yourmoney in sort of, 401k or IRA jail and
(16:29):
we need to get out of jail free card.
And that's what we're talking about today.
Right, Jackie.
yeah, absolutely.
And I feel that way.
So I was bill, you mentioned thesweet spot for maybe setting up a 72
T would be around 45 to 55 for me.
I did it at 55 because obviously we'lltalk about the particulars of a 72 T, but
you have to continue it for the greater offive years or until you're 59 and a half.
(16:52):
So if you're You got along time, but was 55.
So all I'm looking at islike five or six years.
Right.
So that makes a difference.
And that's why I think that,you know, I agree with you.
That's the sweet spot.
so Mr. 72 T you said there's almost20 different ways , or exceptions
that will allow you to get moneyout of your retirement account.
(17:13):
Before you turn 59 and a half.
So we're going to dive into the 72 T part.
But now we know that that's notthe only thing we're going to
talk a little bit more aboutwhat are those other exceptions?
Because these may be the rightfit for some of our audience.
The 72 T might be.
The best fit for others.
So if you're listening to this,we're going to talk through these.
(17:36):
But if you're on YouTube, we'regoing to just show this list and I'll
include it in the show notes as well.
so let me go ahead and show thislist and let's talk through them
and maybe highlight some of theones that are the most important.
So what do you think is the mostcommon or one of the most accessible
ones to people in terms of gettingmoney out of their retirement
(17:58):
account early without penalty.
A 72 T is, a section that is essentiallycrafted in reverse that is essentially
crafted in reverse that says, Hey,You got a 401k plan or you got an IRA
account, whatever it is, you, when youtake money out, will always be subjected
to the 10 percent surtax, comma,unless you qualify for an exception.
(18:25):
Okay, and so the first exceptionis the one we all know about.
Wait until you're 59 and a half.
That one's easy.
we got 19 more to go, of which 16 or moreI'm going to call transaction oriented,
meaning event oriented, that are inthe general gist of things, unpleasant.
(18:49):
So exception number two, there'sno penalty if you're dead.
and so you say, well, that's pleasant.
But it doesn't affect me Exception numberthree is permanent and total disability
Only slightly better than exception numbertwo Then you go to things like Exception
(19:09):
number seven if a judge orders a tax levyOn your assets, there's no exception.
Well, how did you get therethat you've got a tax levy?
big medical expenses.
Quadros.
Those happen when husbandsand wives, split pants.
that was me.
(19:29):
When I got divorced I did havea quadro where my ex husband's
employer, they got a court order.
They had to split it up , Ididn't realize at the time, but
there was no 10 percent penalty.
So could have taken money out.
I didn't.
I rolled it over and I'm glad that I did.
But yeah.
So, quadro stand
Qualified domestic relations order.
Okay.
(19:49):
Okay.
We got to speak English sometimesbecause I would say that to people.
They're like, what does that mean?
Okay.
very simply, it's a sitting judgelistening to a divorce proceeding.
And usually both parties have agreedand present a document to the judge that
says qualified domestic relations order.
(20:13):
It's about three pages long, andhe basically looks at the attorneys
for he and she and says, you guysall agree on this quadro, right?
They say yes, and he signs it and itbecomes a court order, which is ordering
someone, some trustee, either froma Company 401k plan or, your IRA is
(20:38):
trustee that say Fidelity or Vanguardor, wherever they're being ordered
to take the assets and chop them upand put them in different buckets
(22:18):
so I have a questionBill, a clarification.
So I thought the quadros were onlythrough an employer sponsored plan.
Are you able to do this with an IRA?
Or is it called somethingdifferent if it's an IRA?
If it's an IRA, it falls undera spousal division of assets.
Okay.
It has the same effect in that, let'sjust face it in the 21st century
(22:44):
divorce, A is common, B, I believeessentially virtually all states have
passed some version of no fault divorce.
Right.
and so by the time this whole issue getsin front of a judge what we're really
talking about is division of assets andstabilization of income, particularly when
(23:10):
there's minors, kids under the age of 18.
and so quadro is kind of a genericword for the court stepping into the
situation, remembering that a divorceis a state action, whereas exception
number nine here is federal statute.
(23:34):
And the feds have basically said,when the state courts get involved,
we want to be uninvolved, letstates take over do what's right.
And we won't, at the federallevel, interfere with Sir, taxing
(23:54):
and penalizing distributions,
Okay.
Gotcha.
And, this list that we're looking at, itdoes have a column to identify are these,
workplace plans or qualified plans?
Does it apply to those ordoes it apply to an IRA?
So on this list, the QUADROs is saying nofor IRAs, but again, if it falls in the
federal, then that's why that's got a no.
(24:16):
But we will point out as you talkabout them, if it's different for an
IRA versus an employer workplace plan.
so let's, keep going.
What else you got
probably of the yes and no's here.
The number one most importantis number five, which deals
with separation of service.
and here there is a legal distinctionbetween a qualified plan of which
(24:40):
there are lots of different kinds.
We all call them just 401k plans.
That's good enough.
Okay.
And Iris, if you separate from serviceat age 55 or later, and the asset,
the target assets are in the plan,you can make surtax and interest free
(25:07):
withdrawals directly from the plan to you.
And it's okay.
All you need is a cooperative.
Plan administrator.
And so that generally willbreak down into two groups.
Small employers really tend to run 401kplans from a defensive perspective.
(25:35):
I have to run this plan for employeeretention purposes, but I really don't
want to be in the plan administrationbusiness, conversely, big plans
with thousands and thousands ofemployees will tend to be run by.
Big professional entities.
by the way, the top three areFidelity, Vanguard, and Schwab.
(25:58):
I mean, they just, they're so bigand they're so good at it that
they will permit more features in401k plans than small ones will.
So, whereas remember we talkedabout substantially equal periodic
payments being number four.
There's going to be a wholebunch of detail rules.
(26:20):
We'll get into in a little bit.
What's nice about exceptionnumber five is no rules.
Just take the money.
it becomes taxable incomein the year you distribute.
So that if you attain 55, Youdon't even have to be 55 yet in the
year of distribution, first yeardistribution, it's going to come out.
(26:43):
No problem.
you got to do is ask for it.
It's a much better route.
Then exception number four,because you don't have all of
these techie rules to work with.
Furthermore, if you're a first responder,55 becomes 50 and first responders
(27:04):
are all police, all firemen, FBI,DEA, just, it goes on and on and on.
Does that include doctors and nurses?
Oh, look at that, Bill.
so I have anotherquestion for you, Mr. 72T.
So I wonder, it's too bad that alot of employers, or I've heard
(27:25):
from some people to say, yes, I knowabout the rule of 55, which is what
it's commonly called, but would say,well, my employer doesn't allow that.
Now, my employer, it wasn't oneof the biggest ones, but it was
Empower, which is pretty big too.
They did offer the rule of 55 and Ileft at 49, so I didn't get to use it.
However, in your experience withyour client, how common is it to
(27:48):
have the rule of 55 as part of thecustodian's plan at an employer?
think you're asking, howoften do I find it applicable?
Yeah.
Well, it would have to be written intotheir summary plan description, correct?
Or summary plan agreement.
Generally, yes.
In that, are documents thatare hundreds of pages long
(28:11):
that no one ever wants to read.
About plans and trusts.
Okay, throw
them away.
That all gets reducedusually to a document.
It's called a summary plan description,
Okay.
15, 16, 18 pages, and so the realquestion is, who's the plan designer?
(28:33):
Plan designers are almost alwaysthe employer, and are they an
employer of 50 people or 5, 000?
And so they're taught in the lattercase, they're speaking with who's an
administrative professional, a group ofpeople who are going to be trustees and
custodians and administrators of the plan.
(28:56):
And they literally go down a checklist.
And say, do you want thisfeature in your plan?
Yes or no?
Ding da ding da ding, down we go.
And one of them is a separation ofservice withdrawals starting at age 55.
And it's a yes or no checkbox.
And if they check it, yes, boom.
(29:16):
It's in the plan.
And if they check it, no, it's not.
And literally, if they checked yes,And you're, like I said, you're a
first responder when you're over 50or you're over 55 and you're talking
to me, our conversation is a free andvery fast, you don't need my services.
(29:40):
You go use this other exception.
You're good to go.
Okay.
that's good to know.
So that rule of 50 or 55, BillYon, I knew about the rule of 55.
I didn't know the exception for age 50.
If you're a first responder,did you know that Bill?
Yeah, this is an important one because ifyou've been a saver as say an emergency
(30:01):
medicine physician and done well, butyou burn out and you want to access your
retirement plan because you know what?
I can't do this anymore.
Then this is a great rule for earlyretirement of physicians, nurses
or anybody that's gotten it right.
It wouldn't necessarily be a greatrule for the late starter population.
(30:22):
But, I had not heard of this as you asked.
And it's a great rule to get out there.
We got a few more to go throughso we can spend the second
half of the show on the 72T.
And we're at number 10 Mr. 72T.
Can you take us down the rest of the list?
And there's some new oneswe want to touch on too.
They're so new.
They're not even in the guide yet.
(30:42):
well, one of the most interesting thingsto me was you have terminal illness.
domestic abuse the federally declareddisaster areas that might have been
always, maybe we can talk about that for alittle bit, but the 1, 000 emergency fund.
So those are just a few, but Iguess so which one of these are
just through an employer plan?
(31:05):
the latest ones
Oh,
available to both.
So you'd be, we're going to be, yes, yes.
Good to know.
Yes.
Yes.
Okay.
Gotcha.
Gotcha.
Okay.
that's really good to know.
Okay.
and so, for example, the latest startingat 15 is this emergency expenses,
which only kicked in last year, 2024,where you can take a thousand dollars.
(31:30):
Small amount, very transactional and even,so what's the definition of emergency?
Right.
don't even know yet, because as isoften the case, Congress comes up
with good ideas, or maybe not so good,depending on your perspective, gets
a president to sign it, and it's law.
(31:52):
then they hand it off literally tothe general counsel's office of the
Internal Revenue Service and say,You guys figure it out and they just
haven't gotten around to it yet.
Similarly domestic abuse expense.
That one's a little easierto figure out in that.
You're probably paying somesets of professionals that are
(32:15):
in the domestic abuse business.
And it's capped at 10, 000 a year.
Terminal illness, similarly,fairly easy to figure out, I think.
And that would be some physician or groupof physicians has basically stamped your
patient file as terminally ill or, moreobviously, you might be in hospice and
(32:41):
that exception would apply next federallydeclared disasters again, not too
different and up to a pretty big cap, 22grand, which will likely get indexed as my
guess Where you're either in a federallydeclared disaster area, let's pick on
(33:02):
Florida and the Carolinas and Californiaand so forth, and you can essentially,
those are all federally declareddisasters, and you can get at your monies.
Again, without surtax.
Last but not least is going to belong term care insurance premiums.
(33:23):
But that doesn't kick in until 2026.
And again, give Congressa little bit of time.
I bet you they can find two orthree or four more new exceptions
in the next couple of years.
I think.
It is when you are dealing with youroverall family economic unit experience
(33:46):
and whether you're in the business ofselling labor hours or whether you're
switching over and you're now goingto say, I'm stopping the sale of my
labor hour, I'm going to Instead,devote creating a replacement income
stream so I can pay the mortgage,go to the grocery, et cetera.
(34:10):
You best be looking at exceptionsfour and five, the starting
with six and running through 20.
Are they worth looking at?
Absolutely.
Yes.
Just to make sure you haven't overlookedsomething that might be pertinent to
you, and or, and we'll get into thisin a bit, there's logic to setting
(34:34):
up multiple IRAs, and the two mostfrequent We used additional exceptions
are the health care education expenses,because those tend to be big bubble
bucks, kinds of problems opportunities.
And so you go grab those dollars outof a different IRA, while keeping
(34:57):
a quote unquote, a 72 T plan, whichis kind of like a perpetual income
stream running from a base IRA or two.
And then the last couple are alsointeresting too because home purchases
these days are, becoming more expensiveand you can take out money from your
well, you can take it out from anIRA, but not your qualified plan with
(35:20):
your employer in order to purchaseor put your down payment on a home,
correct?
It was
First time purchase onlyfirst time purchase.
I mean, I think I'd have to go backand look means you didn't purchase
a home in the last five years.
Yeah.
And I feel like you as a CPA knowmore than me, I thought it was
two years, but we're going toinclude that into the show notes.
(35:42):
and we'll figure out who's right.
And I would say the CPA might beright, but we'll include that in the
show notes as far as technically, howlong do you have to have not purchased
a primary home to qualify for that?
All of these, by the way, have bellsand whistles, Certain qualifications,
certain nuances, like the higher educationhigher education is another one of those
(36:03):
where you cannot do that through anemployer plan, but you can do it through.
And IRA and the same thingfor health insurance premiums.
I guess I have a question aboutthe health insurance premiums.
So if you have an IRA, you can usethat to pay health insurance premiums.
Can you elaborate on that?
Sure.
you recall your own tax returnand you most of the time you
(36:26):
walk through the steps of.
Doing what's called ScheduleA itemized deductions.
Oh, okay.
Now, same rules are going to apply as theSchedule A itemized In that to qualify for
this exception, two things have to happen.
It needs to be aqualified medical expense.
(36:51):
Number one, and that haspretty broad definition.
And I think we all know what those are.
the second test is it has to bequalified medical expenditures in
excess of seven and a half percentof your adjusted gross income.
That's the first little subtraction
(37:12):
in the top section on the, schedule A.
And so.
So then all kinds of medical expenses,I don't care what doctor you paid.
I don't care what hospital you paid.
I don't care whose premiums youpaid, you're a cooperating premium
(37:32):
in a, corporate health insuranceplan, or whether you're already
purchasing through, I call themthe state auction medical plans.
All of that are consideredqualified medical expense.
And you just total themup, you subtract 7.
5 percent of AGI.
(37:53):
Any excess with unlimited dollarscomes out under this exception.
Okay.
So I got a quiz question foryou because obviously only take
advantage of that particularthing if you itemize your taxes.
Okay.
Versus taking the standard deduction.
Okay.
What percentage of people, let's sayin 2024 or 2023 even what percent
(38:18):
use the standard deduction versus theitemized deduction on their taxes?
Bill, you can't answer.
about 80%
All right, so Bill is raising his hand.
What was your answer, Bill?
Well, I'm going to believe theCPA, so Bill Stecker, you win.
80%. I don't know that we need todebate the real difference there.
(38:40):
So the point is, right, that mostpeople do not itemize, so they may
not be able to take advantage of that.
That's why I wanted alittle more clarification.
And I guess the last two that I thinkare worth mentioning are qualified
reservists and child birth and adoption.
Both of those.
would apply to an IRA and aworkplace retirement plan.
(39:03):
Right.
are new ones.
Those are new
Is it possible to take a portion ofyour qualified plan, roll it over
into an IRA and then use this for theones that say no for the qualified
If
you, well, a couple, I'llgive you a qualified yes.
In that, a couple thingswould have to happen.
One, generally speaking, I don't carewhat kind of qualified plane you're in.
(39:29):
In order to get a buck out, youhave to separate from service.
So the old qualified plans wouldbe amenable to this, right?
And we bounce jobs.
So the old ones, I guessyou could do this with.
Theoretically, yes.
Then, let's say you don't.
need all of it.
You just need some of it.
(39:50):
Then, again, you need acooperative plan administrator.
Let's say you have 50k sittingin a, let's call it a dormant
401k plan from 20 years ago.
And it's just sitting there.
It's invested in howeveryou've so directed it.
And you say, Oh, I want to use anexception that's only available to an IRA.
(40:15):
Your choices would be essentially twofold.
One, you've alreadyseparated from service.
So that old 50 K 401k balance is mobile.
And you can either do what's calleda trustee to trustee transfer of 100
percent of it from 401k land to IRAland, or you can just do part of it.
(40:42):
Depending upon what the planadministrator tells you,
Okay.
Well, there's just like HSAs, there's lotsof little hacks, tricks, and loopholes,
and we may be getting into the weeds,but I think this has been very important.
Jackie, we should probably move onto the 72T, as that is the crux and
the meat of this presentation today,
(41:02):
Yeah.
Yeah.
And like you said, it was worthgoing through these because we're
not saying that the 72 T is foreverybody, but let's kind of hit other
things that you should look at inorder to make this type of decisions.
That's what I had look at.
So Mr. 72 T, we'll get into, thedifferent criterias of setting
up a 72T, the different options.
(41:23):
But I guess initially would behow does one determine whether or
not the 72 makes sense to them?
how do you approach it with your clients?
Let's talk about the planning and strategyaround doing something like a 72T.
probably the easiest way to thinkof it is you have been through a
(41:44):
progression of paid jobs somewhere.
And in today's world,collect deferred accounts.
As a collection in a file drawerand they can be private companies,
public service, 403B plans thatthey're just all over the ballpark.
(42:07):
Think of saying, I'm going to takethis whole menagerie of account types
and I'm going to shove them all.
Into an IRA account, one IRA account,pick the brokerage of your choice
and there's the money 400, 000,600, 000, 800, 000 million dollars.
(42:29):
It is what it is and you've accumulatedall of those assets in one place.
Our first step is to do apiece of real easy math.
by the way, earlier on youwere talking about people are
afraid of the mathematics here.
Don't be.
The fear of the math involved is nonsense.
(42:52):
Almost everybody todayruns a personal computer.
Almost everybody today has got MicrosoftSuites or Microsoft 365 or, Even uses
some, Google products, which are nothingmore than toned down Microsoft products.
(43:12):
It's the equal PMT function in Excel,gives you everything you need to know.
And you put in an interest rate, put ina term, which is your life expectancy.
And you put in the dollar amount ofthe IRA and it gives you a number
back, which is about in today'soperating environment is right around
(43:37):
the six to six and a half percent.
Of the total IRA becomes yourceiling qualified distribution.
so let's say you have 800 Kyour ceilings, 50 K. We figured
that out in about 12 seconds.
And if that fits.
(43:59):
Maybe we continue to have a conversationand do some additional planning.
Conversely, if you say, I'm sorry, I needa hundred thousand dollars a year to make
my family function as an economic unit.
My response is I can't helpyou go get another job.
(44:19):
well, you're right.
The math part can be pretty easy.
And will drop this in the shownotes, but Sean Mulaney, he's
another friend of the show.
He's a young CPA.
He's a young buck compared toyou, but he's a smart guy.
And he, Has a video that he didshowing how to use a Google sheet
in order to calculate your 72 T.
(44:39):
I just copied that overand I started with that.
And then there's a bunch of otheronline calculators and I'll drop the
ones in the show notes that I use.
So you're right.
The math part very doablehas become very easy.
And again, step throughsome of the other nuances.
So you take them through all thosescenarios before you ever go.
arrive to saying, I think the72 T is the right fit for you.
(45:03):
and I want to add on a newconcept that 72Ts are rule bound.
You can only use these formulas,and you've got to be equal, and
you've got to do it for five ormore years, and quite honestly, you
sometimes get sick of the rules.
What we've got here is a ruleset that probably the first
(45:29):
word you think of is fixed
And it's true.
Your financial life is variable.
It's not fixed.
What you've got is oil andwater and they do not mix.
So, I think the valueadded here is pre building.
(45:54):
flexible moves to address either theopportunities or the crises that are
going to face you in a future yearthat you do not know about today.
And if you start working the puzzle, andit is a bit of a puzzle palace, we can
(46:18):
pre build flexible moves so that let'stake a real obvious one, a family member.
is in, has a serious health emergency.
That is either you either don't haveinsurance, or you do have insurance, but
(46:40):
for whatever reason gets classified bysome insurance company as not covered.
It's happening every day today.
And so you say to yourself,well, I'm sorry, can't pay for
that medical set of procedures.
That's not one of the alternatives that isin your vocabulary talking to your family.
(47:05):
maybe you have to cause 100,000 or a quarter of a million
dollars to appear to pay rightfolks to solve the medical crisis.
How do you do it?
Well, if you have just one IRA, onedistribution plan you're probably stuck.
(47:27):
If you have two or three IRAs and you havereserve liquidity, and reserve liquidity
also takes on multiple attributes.
It says, Oh, I can either make a bigdent in this crisis, or maybe I can
(47:49):
completely solve this crisis all thebetter without disturbing the 72 T plans.
I started.
Three years ago.
Keep them running, keep themsafe, so that surtaxes interest
and penalties don't apply.
(48:09):
what you're saying here actually is veryimportant and the way I understood it
from your book is you've got to calculateyour fixed expenses, your baseline fixed
expenses and you can 72T those in one IRAand you can use the second IRA as your
variable expenses where these big swingsin your expense needs can be taken from.
(48:31):
Is that
That's very close to being correct.
Whether you use fixed variable or whetheryou use, uncontrollable controllable.
I think you get to the same bucketsof expense annually and, through time.
But yes, exactly that.
and then also I'm suggestingthe need for a third bucket.
(48:54):
The third bucket could be a third IRA.
It could be just an after taxbrokerage account from your
investment efforts of previous years.
A third bucket for liquidity couldbe you own your home, but you have
a standby home equity line of creditfor 300, 000, which you have not used.
(49:16):
Because, Nothing has presenteditself that required its use.
And so in today's world, Iliterally suggest that we
tackle three different buckets.
The first two, moreoften than not, are IRAs.
Number three can be a mixtureof other stuff so that we can
(49:37):
handle what life brings us withoutdisturbing buckets one and two.
Yeah, so basically you're sayingdon't 72T or SEP your entire
IRA because that leaves you
vulnerable.
So,
So, I have a, additional question.
So, a lot of times, as an alternative to a72T, especially if it's somebody a little
(49:58):
bit younger, they will incorporate, like,the Roth IRA ladder, and I know that kind
of, you have to, it has to season for fiveyears when you do those Roth conversions,
but , do you have any, I guess thoughtsaround the right time to use a 72T?
Roth conversion ladder versus a 72 T.
(50:21):
I believe that let's just take all ofthe qualified plan stuff, the 401ks,
the 403bs, the traditional IRAs, andthere's been a consistent message
actually coming from the government,as well as employers, as well as the
whole financial press, and that messagehas always been save early, save often.
(50:48):
and you will be blessed witha nest egg of a material size.
Let's just say somewhere in your fifties.
Okay.
That sum of assets and the way itgrew was really good news for decades.
(51:09):
Now we've got something called an RMD.
Starts at age 73 at the moment.
I think that one's gonna get kickedto maybe 75 in the near future.
But the very structures of theseplans that you have been contributing
(51:29):
to and your employers beenputting in as well, We're great.
They just became your worst enemybecause of, let's say, hitting age 75.
and if you don't tackle this problemtoday, remember that in general,
(51:51):
these big asset pools are going todouble every seven to eight years.
So let's just, you're 55,you got a million dollars.
And there's 20 years to age 75.
That means you're going to have 8million when you're 75 years old,
because it's going to double twiceonce to twice that get the math.
(52:13):
And all of a sudden youcan stand there at age 75.
And say to yourself,now I got two problems.
I've got required minimum distributionsthat look like 300, 000 a year,
which just blew me through aboutsix tax brackets where I was.
(52:36):
And I'm nudging up against thefederal estate tax exclusion, which is
currently just a touch under 14 million.
Now, lots of people won't face this,but there's a solution to which you
hinted, but it needs to be launched, notnecessarily in your 50s, but certainly in
(52:58):
your 60s, which is the free period fromage 60 to 75 of saying, I'm going to build
a layer cake of Roth conversion layers.
Now, there's, theory and goodmath on, well, how big's a layer?
Should it be 5, We can figure that out.
(53:21):
Now, can you start earlier?
Sure you can.
If you've got a set of plans providingincome and you're saying to yourself
and I got something left over.
should I start Roth conversions inlower tax brackets in my mid fifties?
(53:42):
The answer is yes if it's there.
If it's not there don't worry about it.
let's get through this box.
Of the fixed plan five year set ofrules hit that 59th and a half or
60th birthday Shut the plans downreplan and definitely build in 15
(54:05):
years of Roth conversion layers
I have a question, please.
So, we talk about 45 to 55 beingthe sweet spot, give or take.
Should you start a 72T,Exception 4, SEPP plan?
After 55 or is that a moot pointbecause you're going to turn 59 and
a half And what happens to a 72 tplan if you start it later and it?
(54:29):
extends beyond 59 and a half
Well, I got a multi part answer there.
if you just turned 55 or you justturned 56, or maybe even 57, no big
deal, go ahead and start the plan.
Even though it's going to stretch beyond59 and a half, get to hit the full five.
(54:50):
Meaning five times 365 number of days.
By the time you're in your 57, thenI'm going to challenge you and say, do
you really want to start a plan that isyour, so to speak, you're going to be.
(55:10):
fence straddling with two years hungdown below 59 and a half and three years
above 59 and a half, you're almost betteroff looking for a different source of
income, including just even borrowing yourliving expense to hit the 59th and a half
birthday so that these rules don't stretchuntil you're say 62 and a half or 63.
(55:37):
Yeah, so that makes sense.
And the reason why Bill is askingthat question is because remember,
one of the rules of the 72 T is thatit has to continue for five years.
Or 59 and a half, whichever is longer.
So if you're starting it at 57, thenyou have to do it for five years.
And then when we are mentioningthe acronym S. E. P. P.
that stands for Bill Yount.
(55:59):
What does S. E. P. P. stand for?
Substantially equal periodic payments.
Yes
great.
Yes, you got it right.
Yeah.
Ding,
ding, ding, ding, ding.
So I just sometimes when we useacronyms and stuff, people are
like, what are they talking about?
Especially if they skipped over a section.
So I just wanted to justhave a reminder of that.
So I guess what I gatherfrom what you're saying Mr.
(56:20):
72 T is that the, IRS Rule 72T and Roth Conversion Ladder.
Those do not have tobe mutually exclusive.
You can actually use them inconjunction with each other.
You can use both of them.
It's not one
Sure.
It doesn't have to be
Sure.
Because in general, the whole concept, Imean, thank God for Senator Roth in 1998.
(56:42):
That's why it's called a Roth conversion,
Right.
or a Roth IRA.
The whole game plan in Rothconversions is tax bracket management.
Which is a lifetime issue, not 10years, not 20, not even a little five
year and we're talking about set plans.
(57:04):
That's just a short term issue to hitfive years or 59 and a half and, you'll
get there quick enough and then tackleRoth conversion layers head on the target
being that at least from 60 to 75, youput in place a regimen that on your
(57:27):
75th birthday, you're You're standingthere and you say, Oh, look at this.
Remember 15 years ago when 90percent plus of my liquid investable
assets were in deferred accounts.
IRAs, the 401ks, et cetera.
The teeter totter was tilted likethis, and then each year you cause
(57:52):
the teeter totter to change untilon your 75th birthday, you go, gee.
I don't have any RMDs.
You say, well, why not?
Just because my IRAs are gone.
All I got left is aftertax accounts and Roth.
Yeah, you're not coming to that tax bomband we'll probably do another episode,
(58:13):
you know, wholly on Roth conversionsFolks want to warn you that we want to
make this a comprehensive 72 t episodesSo we're going to go a little long today.
So stay with us
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