Q. I am in early 50's and lost my job. Should I take rule 72(t) distribution from IRA?
A. It is probably not a wise move to do so.
Rule 72(t) allows you to bypass the IRS 10% penalty (in addition to income tax) on early withdrawals from IRA before age 59.5. If use use the Rule 72(t), you can take "substantially equal periodic payments" from your IRA without penalty, you still have to pay income tax, though. And you have to keep taking the payments until you are 59.5 or at least 5 years, whichever is longer.
This creates a risk - what if you find another job next year? You cannot stop the distribution from IRA, and it could push you to a higher income tax bracket.
An ever bigger risk, to your retirement life, is that once you start taking 72(t) distribution, you can no longer make contributions to your IRA, this could seriously hurt your retirement saving!
The bottom line, use the 72(t) distribution as a last resort, and think twice before taking it!
A. It is probably not a wise move to do so.
Rule 72(t) allows you to bypass the IRS 10% penalty (in addition to income tax) on early withdrawals from IRA before age 59.5. If use use the Rule 72(t), you can take "substantially equal periodic payments" from your IRA without penalty, you still have to pay income tax, though. And you have to keep taking the payments until you are 59.5 or at least 5 years, whichever is longer.
This creates a risk - what if you find another job next year? You cannot stop the distribution from IRA, and it could push you to a higher income tax bracket.
An ever bigger risk, to your retirement life, is that once you start taking 72(t) distribution, you can no longer make contributions to your IRA, this could seriously hurt your retirement saving!
The bottom line, use the 72(t) distribution as a last resort, and think twice before taking it!
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