January 16, 2018 Comments (0) Blog

Is a 72t Early Retirement right for you?

72t early retirement
(Last Updated On: January 16, 2018)

Information on 72t Early Retirement

It is important to know everything there is to know about getting into any type of early retirement. 72t early retirements are often recommended by financial advisors looking to get you to roll your IRA or 401k over to them to manage.

As such, it is important to try to understand a 72(t) as best as possible before actually taking the significant step of retiring early and enrolling in the program.  The following will give you the basics but definitely research this as much as possible before moving forward.

What is a 72(T)?

What does the term 72(T) mean? 72(T) is the Internal Revenue Code that defines how an individual can go about removing funds from their retirement accounts without paying penalties. There are about 10 exceptions if you withdraw monies prior to being 59 ½ years old. The 72(T) can be beneficial, if done correctly. In one exception, it allows the individual to circumvent the 10% penalty (on top of the standard tax) by taking a series of, at least, annual distributions from your retirement account. Those distributions must be “substantially equal periodic payments” (SEPPs) calculated. Although the term substantial is not defined by the IRS there is a math equation that will determine what your minimum distributions must be. Visit www.irs.gov for more information.

If the process is done incorrectly, the 10% penalty tax will be assessed on every single dollar you have taken out thus far. For instance, if you take out $2,000 per month for 2 years as your SEPP, and out of nowhere, you have an unexpected bill for $2,500 on top of your normal monthly expenses and the next month you take out $4,500 to off-set the unexpected expense, you will be penalized 10% on $2,000 x 24 (2 years) + $4,500. So, your penalty will be 10% on $52,500 which is a staggering $5,250 to pull out an extra $2,500. The penalties can kill your retirement quickly. The rules must be followed without deviation.

The biggest risk is assuming that you have enough money to retire because the funds essentially have to be withdrawn regardless and if your account goes down because of the market these withdrawals can substantially erode your account.

This is particularly significant because some financial advisors will make bold claims about the return you can expect under their management as an inducement to retire and rollover your retirement accounts to them.   It is important to remember that there are no guarantees in investing. Retirements should be able to ride the fluctuation wave of the economy. If the economy changes drastically, and you are unable to see it through, your retirement may end. Be aware of unrealistic annual returns.

How to avoid being a victim

To avoid being scammed there are a number of things you can do to help you.

  • Ask questions to the broker(s) at the seminars or public speaking engagements. Never be afraid to ask questions of things you do not understand when it comes to your retirement.
  • Research the broker and the brokerage firm pitching you the early retirement options. They may have had prior complaints for the exact same thing.
  • Take your time in making decisions involving your retirement. This is not something that you have to make a life changing choice in a split decision. Take your time to taking everything in, and go back to number 2, do your research. No one cares more about your retirement than you do!
  • Always be cautious of unsolicited offers. You must remember these are sales pitches to attempt to get your money with their brokerage firms. This is how they make money.
  • If another broker pitches an idea of early retirement, ask your current broker about what was said. You already have a rapport with your broker, and it gives you a 2nd opinion.

Be your own advocate when it comes to your knowledge of your retirement accounts.

Recovery of Retirement Losses

The foregoing information is being provided by The White Law Group. The White Law Group is a national securities fraud, securities arbitration, and investor protection law firm.

If you feel like you have been the victim of a retirement scam, call The White Law Group, they may be able to help you recover your retirement losses. The firm represents investors throughout the country and has physical offices in Chicago, Illinois and Vero Beach, Florida. Call for your free consolation at 1-888-637-5510. Or visit our website at https://www.whitesecuritieslaw.com.