Things to Know Before Using a Calculator for 72(t) Payments

We have previously discussed all about the 72(t) rule and the benefits of using a calculator to determine the equally substantial payments. One thing that must be clear to you before making a decision is that your choice of distribution method will greatly affect your equally substantial payments as well as the payment period. In order to make things even clearer for you, we will give you a short introduction for each method along with a comparison using a hypothetical example.

Things to Know Before Using a Calculator for 72(t) Payments

Three Ways to Use a Calculator to Determine 72(t) Payments

 

 

A Hypothetical Example for Calculating 72(t)

Let us take an example of an IRA owner who is 50 years of age. Let’s say the person has an account balance of $100,000 on which the annualized rate of return and interest rates are 8% and 4% respectively. Here is a table that depicts the comparison of payments using three different methods for five years.

Life Expectancy Method

 

Annuity Method

 

Amortization Method

These calculations are quite complicated and will take a lot of time and expertise. Financial consultants will typically charge a good amount of money to calculate the amount for. That is why we bring to you a calculator that can help you calculate 72(t) payments without much hassle.

Changing the Calculation Method

Traditionally, changing the distribution method was not allowed without a penalty. Yet, rule changes in 2002 have allowed IRA owners to change their distribution from a fixed dollar method (amortization or annuity) to variable-dollar method i.e. life expectancy distribution without being penalized. Once the method is changed, it is applied to all subsequent years. This calls for even more complicated calculations and that is where a calculator can come in very handy.

A Calculator will help you Decide

Using an efficient online tool such a calculator for 72(t) payments will save your time, cost and effort. Yet, that is not all. A calculator will help you make a more educated decision based on your current financial position and future financial needs. As a result, you will be able to manage your finances in much more profitable manner.

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Blog June 1, 2013 admin No Comment(s)

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