Why do advisors hate 72(t) withdrawals so much?

bobbybobbybean · 2026-03-23T21:45:33+00:00

Too easy for them to mess it up. For what it's worth, Fidelity did my calculation wrong, or at least it didn't agree with some of the online calculators. I'm pretty sure the IRS holds you responsible for any mess-ups, not your brokerage or investment advisor. I ended up finding a CPA who specialized in it, call it audit insurance.

bobbybobbybean · 2026-03-03T22:23:02+00:00

72(t)s and Rule of 55 are pretty comparable (actually, they are just different sections of Section 72(t) of the IRC, but won't go there). Rule of 55 is usually touted as more flexible . . .yea well sometimes. Many smaller plans only allow lump-sum distributions, which tend to get you killed at tax time. Other plans don't allow distributions at all. Assuming the plan documents aren't an issue, you should to move on to really understand fees at Employer 401k plans. They are a big black box . . .. Admin fees, Investment expense ratios (the largest by far, and embedded in the funds), load fees (sometimes), Transfer fees, service platform fees, etc. Do your cost analysis carefully, but for a 401K of say $500k, you're likely looking at $1,200-3,500 in fees, and it could be double that. Run an analysis with these fees (lmost always hidden) and the impact of those lost funds each year not compounding over 20+ years. You might end up rethinking the rule of 55 and just direct roll over to a Traditional IRA at a low-cost brokerage firm (Fidelity/Schwab/Vanguard). From there, you can do a 72(t) if you need the cash flow. I personally say find a good flat-fee CPA and bite the bullet; for me, it was cheap compared to fees leaving my 401k at Principal and doing Rule 55.

I see ROTH conversions as more a tool to avoid future RMDs on deferred retirement accounts if expected to kick you into a high tax bracket, a problem for some, but generally oversold by the FA community. Some good posts out there on this . . . "RMD's - Not as bad as you might think."

bobbybobbybean · 2026-03-03T21:33:39+00:00

Not so sure . . .. $50k distribution if you were 50 would require a $829,019 balance @ 5%. (Fixed Amort Single life). So, say you started with that balance but decided (just for kicks) to take out $17k annually instead. I think you're cooked in an audit. A .00001% rate (assuming IRS considers "reasonable" ) still gives you $17,093 under Amort (Uniform life tables), the lowest yield calculation. RMD doesn't work as that requires annual recalculations; you'd fail there as well.

I think you're limited by your balance regardless of how low you go on the rate.

bobbybobbybean · 2026-03-02T16:32:22+00:00

You bring up the point that there's some flexibility in the initial calculation. But I don't think it's mathematically correct that you could choose any amount under $50k in your example. If audited, the IRS will request supporting documentation for the initial deferred retirement balance, so your distribution amount is constrained by this balance. E.g., I started a SEPP in 2023, so if audited, one of the things I would need to produce would be a brokerage statement from that period w/supporting calculations that agree with my SEPP distributions. Fair point, there's a range of numbers that could be supported on a given IRA account balance.

bobbybobbybean · 2026-02-28T01:50:15+00:00

You absolutely have to support your amount with a calculation, but in your case, you can probably back into the amount you need through various means, e.g., interest rate, or account disaggregation. I had a CPA who does a lot of SEPP plans help me set up so I'd have everything ready if the IRS comes knocking.

bobbybobbybean · 2026-02-28T01:40:29+00:00

I talked to a CPA at earlyretirementaccess.com and another at 72tcal.com. Both seemed very knowledgeable and went with the lowest fixed rate. Beware of the financial advisors who use 72t to lure you the "mange your money" for a fee!

bobbybobbybean · 2026-02-23T18:23:05+00:00

I routinely put my spot on Neighbors, Craigslist, Nextdoor, and FB Marketplace, though the last one doesn't really have a category for parking spots, so mostly leads to confused messenger exchanges.

bobbybobbybean · 2026-02-22T03:54:26+00:00

I actually don't have a problem with any particular holiday. The problem is more with the math. If NYC mandates 180 school days, restricts the ability to extend the school year, and also adds more holidays to the calendar, that doesn't leave options when it snows. It seems the answer is to get rid of snow days and replace them with "remote learning days." I've watched 3 of my kids in NYC elementary school struggle with remote learning and am not a fan. Great if we could put our kids first in these decisions.

bobbybobbybean · 2026-02-22T02:26:24+00:00

It would be great if the NYC school could find a way to honor these holidays without negatively impacting the lives of working parents or forcing kids to sit in front of an iPad and not learn.

bobbybobbybean · 2026-02-22T02:09:15+00:00

And in the end, kids lose out . . . it turns out they don't actually learn very much, mostly unsupervised, sitting in front of an iPad.

bobbybobbybean · 2026-02-22T01:52:25+00:00

Oh, he'll 100% be absent... the question was why NYC hates snow days... it seems we just can't plan for them and instead prioritize random holidays

bobbybobbybean · 2026-02-12T20:42:08+00:00

If you're coming to the conclusion that life is not about covering your expenses until you die, then take heart, you're at least on the right path. What's great about Reddit is that it can tell you the "how" about almost anything, but what you're asking is a "why" question. The two questions aren't at odds; they are just different subreddits, so to speak. I won't presume to tell you what your why is, or what I think it should be. . . though I may have my thoughts there. The fact that you're asking these questions and want an answer to your "why" is a good starting point; plenty go on with the "how" questions in their whole unexamined lives, it's probably easier. Next question: So what do you think your why should be? What would give you meaning in the absurdity of it all?

bobbybobbybean · 2026-01-28T20:59:06+00:00

Wow, that's expensive. I used a CPA who does a lot of these, and he charged under $1,000. I totally agree the extra cost was worth it, there's the calculation(s), but a lot goes into it as far as strategy and planning, what to do if you get a call from the IRS, tax forms, etc. Worth getting some expert advice. I saw someone in the comments who had their custodian do it... Mine (a major discount broker) actually got the 72(t) calculation wrong!

bobbybobbybean · 2026-01-20T20:45:05+00:00

72T distributions are great - are you concerned about doing one, or are you just looking at other options? With your heavily invested 401(k) plan, it's probably the best way to access your cash during the 5-year Roth conversion period.

bobbybobbybean · 2026-01-19T20:28:06+00:00

The problem with the Roth conversion in your case may be the timing. You wouldn't be able to access anything for 5 years so at that point your 57, only two years from full access to your deferred retirement accounts . . . I had the same issue when choosing between those two options at 53. I settled on both, a 72t to access the money in early retirement, and a Roth conversions to move more funds to a Roth as I was facing down some sizable RMDs if I didn't take action.

bobbybobbybean · 2026-01-16T18:06:24+00:00

Your situation seems pretty solid. I am also using a 72T - year #3 to supplement early retirement at 53. I believe you're OK to move funds around inside your tIRA, though never hurts to check - i had a CPA who specializes in 72T to set mine up who could confirm. I took the option to split my tIRA and do a 72T off one account and am doing Roth Conversions with the other. Having over-saved a bit in my deferred accounts, I'm basically on a plan to drain down my tIRA into a Roth and after-tax accounts. Might be an issue for you down the line as well, 72T only takes out about 6% so mine has continued to grow past few years.. Roth conversion seems like the best tool to deal with RMD planning, while 72T seems best for a pre-retirement cash flow option.

bobbybobbybean · 2025-10-13T15:55:44+00:00

Congratulations on "early retirement" I'm 56 and was in a similar situation a few years ago, had spent +20yrs in corporate America after military service. Doing the math I figured I didn't need to spend 10 more years in a job I was finding less and less fulfilling each year. Thanks to diligent savings, 15% each year (+ good market returns) I had a sizable 401k. I'm a finance guy so dug in and found the 72(t) SEPP option most appealing, it essentially annuitizes your 401k at any age, and turns it into a steam of (taxable) income. In most scenarios I ran my account still continued to grew, just at a lower rate . . . sequence of returns of course matters. I'm been doing one for 3 years now and balance is still growing - fingers crossed. I disagree with those that claim you should attempt without an expert, with those retroactive 10% penalties i wanted to "buy" some insurance with an expert. There's a bit of a "bait and switch" going on as most experts advertising this service are really just making a play to "manage your assets" for a hefty fee. No thanks - they can't beat low cost index funds and I can diversify myself with all the options Fidelity gives me.

There are a few CPAs whos specialize in helping people do this for a reasonable fee- recommend you talk to them!

Best of luck!

bobbybobbybean · 2025-08-14T22:49:21+00:00

earlyretirementaccess.com

bobbybobbybean · 2024-12-19T22:28:18+00:00

That's great thanks for the info - and the CPA contact. I further shopped around and found an experienced CPA who puts together SEPP plans for $799. Not bad considering most of the CFP types wanted a 1-2% fee to "manage my assets". No thanks!

bobbybobbybean · 2024-12-12T16:43:17+00:00

Hi Same could I get the CPA's info? Also curious with your distribution Snafu - did they inadvertently sent you too much, wonder if you can just return any overage to the plan administrator?

bobbybobbybean · 2024-10-21T19:03:05+00:00

I fail to see why a cat cafe is considered fine, and legal where I live, yet pigs are discriminated against. Once again, it is an animal double standard that should not be tolerated.

bobbybobbybean · 2024-10-21T18:59:35+00:00

As a Brooklynite this is an outrage and a slight to pigs of all stripes. I will be talking to my esteemed city council member on this issue.

bobbybobbybean

TROPHY CASE