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Author: wisefool2 Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: of 76094  
Subject: IRA Early Withdrawals Date: 11/26/1998 12:47 AM
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I am interested in better understanding the process for making a withdrawal prior to age 59 1/2 without incurring the 10% penalty by setting up a constant annual withdrawal stream. Can anyone enlighten me on how this process works and is it irreversible? (ie- once you establish it that's it!). Also, what happens if your portfolio appreciates more than what you established the annual payment stream at? How much flexibility is there in this process?
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Author: ZBar Two stars, 250 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 6781 of 76094
Subject: Re: IRA Early Withdrawals Date: 11/26/1998 9:41 AM
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I am interested in better understanding the process for making a withdrawal prior to age 59 1/2 without incurring the 10% penalty by setting up a constant annual withdrawal stream. Can anyone enlighten me on how this process works and is it irreversible? (ie- once you establish it that's it!). Also, what happens if your portfolio appreciates more than what you established the annual payment stream at? How much flexibility is there in this process? I am interested in better understanding the process for making a withdrawal prior to age 59 1/2 without incurring the 10% penalty by setting up a constant annual withdrawal stream. Can anyone enlighten me on how this process works and is it irreversible? (ie- once you establish it that's it!). Also, what happens if your portfolio appreciates more than what you established the annual payment stream at? How much flexibility is there in this process?

Without getting into specifics here's a partial answer. You must use one of the three approved IRS methods. You can either get a fixed dollar amount or an amount that that is a % of that year's balance in your IRA.

Yes, it is irreversible until the longer of five years or until you reach 59 1/2. There is not any flexibility once a method is chosen. Once you break any of the rules for the method you chose, you will be responsible for a 10% penalty on ALL distributions past and present.

Incidently I am using the third method for my sec 72 t withdrawals which determines an annual factor that is used with that year's balance in the IRA. If the investments do well, my distributions go up, if the investments go down my distribtution goes down. It can be a bumpy ride.

Hope this helps.

Z-Bar

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Author: TMFPixy Big gold star, 5000 posts Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 6794 of 76094
Subject: Re: IRA Early Withdrawals Date: 11/26/1998 11:43 AM
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Greetings, Wisefool2, and welcome. You asked:

I am interested in better understanding the process for making a withdrawal prior to age 59 1/2 without incurring the 10% penalty by setting up a constant annual withdrawal stream. Can anyone enlighten me on how this process works and is it irreversible? (ie- once you establish it that's it!). Also, what happens if your portfolio appreciates more than what you established the annual payment stream at? How much flexibility is there in this process?>>

You are referring to withdrawals under Section 72(t) of the Infernal (sic) Revenue Code. There are three permissible methods. Once started, you cannot change the method in use and you must use that method for the longer of five years or until you reach age 59 1/2. A gain in your portfolio while using the method has an impact only in the life expectancy method of withdrawal, which is recalculated each year. It has no impact on the other two methods, which are fixed starting in the first year of withdrawal.

For an explanation of the methods, see the post on this board at http://boards.fool.com/Registered/Message.asp?id=1040013000805003&sort=postdate

Regards…..Pixy



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