Early IRA Distributions (Section 72t Distributions)

Perhaps I have not adequately explained the multiple problems from this one limitation.

There are several issues here:

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Age is not at all the issue here. Section 72(t)(2)(A)(iv) allows penalty-free annuitization at any age; even Hannah Montana is eligible! Note that 72(t) allows ONLY annuitization - other withdrawals are prohibited.

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Any attempt to add earnings after the retirement age on Earnings page results in the error message "You can't add earnings past your retirement age".

The best resolution is:
1. separation of Roth from non-Roth accounts for annuity purposes
2. multiple annuities possible for each for retirement account
3. "retirement age" not a necessary input for retirement annuity; rather the age at annuity beginning and annuity end is necessary for each annuity.

Here are details:

1. "WORK OR RETIRED" LIMITATION
My original post stated Quote:"the program won't let you take a retirement annuity and keep working . . . and still want to contribute to IRA or Roth".
If you tell ESPlanner to start your retirement annuity at age 60, it will NOT let you make any contributions to a retirement account after age 59. Your reply above confirmed this as Quote:"there is a retirement date . . . which basically defines when you expect to stop earning completely". This is the Work or Retired Limitation in ESPlanner. ESPlanner forces you to either be working and not retired, or not working and not "retired" or retired and not working.

However, "Retired" and working is a relatively common situation today. For example, IRS allows you to take penalty-free distributions from company 401k if you retire from that company after 55, but at that age many people find second careers or part-tme work. So your future plan could show future work AND a future retirement annuity AND future earnings added to new IRA/Roth. ESPlanner can't handle this at all.

2. "WORK OR RETIRED" LIMITATION PLUS ROTH/NON-ROTH LIMITATION
Say you plan (or are forced) to retire from your job two years from now and begin self-employment. To stabilize your income you will annuitize your company 401k but NOT your Roth. ESPlanner can't handle this 401k versus Roth separation. Meanwhile you will be adding money to your future SEP/Keogh/Solo401k. ESPlanner can't handle this either since you are "retired" AND working.

3. "WORK OR RETIRED" LIMITATION PLUS SINGLE-ANNUITY LIMITATION
A long-time employee expects he will lose his job when current project ends in two years, and expects to find only part-time or low-paying work while being re-trained, so he plans to begin penalty-free taxable Section 72(t)(2)(A)(iv) withdrawals
http://www.irs.gov/retirement/article/0,,id=103045,00.html#2 in two years from IRA/401k. ESPlanner can't handle this because while it lets you choose Special Taxable Receipts, it has no way to adjust the future retirement account balances for the future withdrawals. Section 72(t) is essentially inapplicable to Roths, but ESPlanner can't handle this IRA versus Roth separation either. Our re-trained worker will therefore deplete just one of his several retirement accounts over a time period as short as 5 years. Perhaps years later he will begin to deplete his other retirement accounts; ESPlanner can't handle the multiple accounts or the separate annuities. After 4 years he expects to be retrained and find a new, full-time job and begin adding to a new 401k. ESPlanner can't handle this either because he will be contributing after "retiring" and will need to withdraw from two accounts with different times and durations.

I do not view these as unusual situations - these days they are probably more likely to occur than getting a traditional company pension! :cry: These are the same situations that often force people to take Social Security at age 62 even if they had planned to work until 65. The only difference is the ability to plan to use retirement accounts as well as Social Security, which is obviously of critical importance for anyone under age 62.

These situations most often affect those 50-67, and those are the ones most likely to pay for and use this program as well.

As stated above, the best resolution is:
1. separation of Roth from non-Roth accounts for annuity purposes
2. multiple annuities possible for each for retirement account
3. One "retirement age" is not a necessary input; the age at annuity beginning and annuity end are necessary for each annuity.

With these features, you need not be too concerned with specifics of the tax law since the treatment of Roth and non-Roth accounts and the annuity calculations are already present in ESPlanner.

Regards,
Michael