Most people assume that if they access retirement accounts before age 59½, they’ll automatically face a 10% early withdrawal penalty.

That’s not always true.

In this episode of The Divorce the IRS Podcast, we break down one of the most overlooked retirement tax strategies available today: the 72(t) strategy, also known as SEPP (Substantially Equal Periodic Payments).

This IRS-approved strategy allows certain investors to access money from traditional IRAs and other qualified retirement accounts before age 59½ without triggering the typical 10% early withdrawal penalty.

We explain how the 72(t) rule works, who typically uses it, and why it can become an important planning tool for people pursuing early retirement or trying to create tax-efficient Roth conversion strategies.

You’ll learn how some investors use 72(t) distributions to create an income stream that can help pay taxes generated by Roth conversions, potentially allowing them to move larger amounts of money into tax-free Roth accounts over time.

We also discuss the important rules and risks surrounding the strategy, including required withdrawal schedules, IRS-approved calculation methods, the five-year commitment requirement, and why proper planning is critical before implementing this type of strategy.

If your goal is to create more tax-free retirement income, reduce future tax exposure, and understand advanced retirement planning concepts, this is an episode you won’t want to miss.

In This Episode

• What the 72(t) / SEPP strategy is
• How to access retirement accounts before age 59½ without penalties
• The difference between 72(t) and 72(q) strategies
• How 72(t) distributions may support Roth conversion planning
• Why Roth conversion taxes stop many investors from converting
• Why using retirement money to pay Roth conversion taxes can create penalties
• How the 72(t) strategy may help avoid the 10% early withdrawal penalty
• The three IRS-approved withdrawal calculation methods
• Differences between the RMD, annuitization, and amortization methods
• Why the RMD method is generally more conservative
• The five-year rule for 72(t) distributions
• Why you can only make certain calculation changes once
• How investors can isolate only a portion of their IRA for a 72(t) strategy
• Why proper financial planning is critical before implementing advanced tax strategies

What’s Coming Next

• The Rule of 55 and how it works
• Advanced Roth conversion planning strategies
• Tax-free retirement income concepts
• Backdoor and Mega Backdoor Roth strategies
• Retirement tax planning mistakes to avoid

• Visit Divorce-the-IRS.com
• Visit Baobab Wealth
• Visit Baobab Wealth Abroad
• Buy a copy of Jimmy's book, Divorce the IRS
• Follow us on Facebook
• Subscribe to us on YouTube
• Connect with us on LinkedIn

LISTEN TO THE IDEAL NUMBER EPISODE:
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CALCULATE YOUR IDEAL NUMBER:
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One of the biggest questions in retirement tax planning is whether it makes sense to pay taxes now instead of later.

For many people, the answer may be yes.

In this episode of The Divorce the IRS Podcast, we break down Roth conversions and why they can be a powerful strategy for moving money from tax-deferred accounts into tax-free Roth accounts.

A Roth conversion allows you to shift some or all of your pre-tax retirement money into a Roth account. While this creates a tax bill in the year of the conversion, it may also help reduce future taxes and create more tax-free retirement income.

We explain why Roth conversions are sometimes described as “refinancing your IRA” and how this strategy can help investors lock in today’s tax rates instead of waiting to see what tax rates may look like later in retirement.

You’ll learn why paying taxes on retirement money today may be more attractive than paying taxes later on a much larger account balance, especially if your pre-tax accounts continue to grow over time.

We also discuss important rules and planning considerations, including the five-year rule for Roth conversions, the 10% early withdrawal penalty, why you should generally avoid using converted retirement funds to pay the tax bill, and why Roth conversions can no longer be undone through recharacterization.

If your goal is to build more tax-free retirement income, reduce future required minimum distributions, and create greater long-term tax flexibility, Roth conversions may be an important strategy to understand.

In This Episode

• What a Roth conversion is
• How Roth conversions move money from tax-deferred to tax-free accounts
• Why Roth conversions are sometimes called “refinancing your IRA”
• Why current tax rates matter in retirement planning
• How future account growth can increase future tax exposure
• Why you may not be in a lower tax bracket in retirement
• How to strategically convert only the amount that makes sense
• Why you should be careful about pushing into a higher marginal tax bracket
• Why paying the tax bill from outside funds may be important
• How the 10% early withdrawal penalty can affect younger investors
• How the Roth conversion five-year rule works
• Why Roth conversions are permanent and cannot be undone
• How Roth conversions may affect Social Security taxation, Medicare premiums, RMDs, surviving spouses, and heirs

What’s Coming Next

• Lesser-known strategies for early retirement planning
• Ways to create tax money for Roth conversions
• More tax-free retirement income strategies
• Advanced planning concepts for reducing future retirement taxes

• Visit Divorce-the-IRS.com
• Visit Baobab Wealth
• Visit Baobab Wealth Abroad
• Buy a copy of Jimmy's book, Divorce the IRS
• Follow us on Facebook
• Subscribe to us on YouTube
• Connect with us on LinkedIn

One of the biggest misconceptions in retirement planning is the idea that high earners are locked out of Roth IRAs forever.

They’re not.

In this episode of The Divorce the IRS Podcast, we break down one of the most powerful advanced Roth strategies available today: the Mega Backdoor Roth.

This strategy allows certain investors to move significantly larger amounts of money into Roth accounts through their employer-sponsored retirement plans, even if they earn too much to contribute directly to a Roth IRA.

We explain how the Mega Backdoor Roth works inside many 401(k) and 403(b) plans, including the role of after-tax contributions, Roth 401(k) salary deferrals, employer matching contributions, and IRS total contribution limits.

You’ll learn how some retirement plans allow participants to contribute far beyond the standard employee contribution limits and why understanding your specific plan provisions is critical before implementing this strategy.

We also walk through a detailed example showing how investors may be able to move tens of thousands of additional dollars into Roth accounts each year through after-tax contributions and Roth conversions.

If your goal is to build more tax-free retirement income and maximize long-term tax flexibility, understanding the Mega Backdoor Roth strategy could be an important piece of your retirement plan.

In This Episode

• What the Mega Backdoor Roth strategy is
• How Roth 401(k) contributions differ from Roth IRAs
• Why high earners may still have powerful Roth opportunities
• Understanding total 401(k) contribution limits
• How employer matching and profit sharing factor into the calculation
• What after-tax 401(k) contributions are
• How after-tax contributions may later convert into Roth assets
• Why some plans allow in-service Roth conversions
• A real-world Mega Backdoor Roth example explained step-by-step
• Important planning considerations before implementing the strategy

What’s Coming Next

• Roth conversion strategies explained
• How retirees may create more tax-free retirement income
• Tax planning opportunities involving pre-tax retirement accounts
• Advanced Roth planning concepts for long-term retirement flexibility

• Visit Divorce-the-IRS.com
• Visit Baobab Wealth
• Visit Baobab Wealth Abroad
• Buy a copy of Jimmy's book, Divorce the IRS
• Follow us on Facebook
• Subscribe to us on YouTube
• Connect with us on LinkedIn