adiggs
Well-Known Member
Check out Rule 72t distributions - it's a way to get money from an IRA without paying penalties.
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How much $ to retire and how to fund your lifestyle in retirement
- Thread starter dl003
- Start date
You can withdraw your Roth IRA contributions at any time without penalties. The drawback to doing that is that it will no longer grow tax-free.
From what I've read so far about rule 72t, it requires that you set a distribution plan (there were 3 calculation methods that were allowed to be used to determine the plan) and execute it for the life of that IRA. And contributions into that plan are forbidden, otherwise the 10% tax penalty will be RETROACTIVELY applied! Yuck!
So basically, split the IRA to an amount that you want this distribution to apply for the rest of your life, and never touch that IRA ever again (until after 59.5?)
Edit: Oh, and extra withdrawals from that IRA would count as changes to the plan as well and incur the retro penalties.
All-in-all, sounds like the perfect plan for my situation! Thanks adiggs!
Yeah, you can withdraw the contributions at any time but for the gains is different. You can do this:
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My problem is that most of my holdings are already in a Roth. Slow and steady over time I was buying up TSLA.
My understanding is that after 5 years you can get the money penalty free. The part that I don't know is do the holding have to be in cash sitting for 5 years?
I've just been maxing out my contributions for my Roth each year and dumping into TSLA. Typical Roth rules are that you have to wait til 59 1/2 to withdraw contributions tax-free. A ladder conversion scenario doesn't help me much because my pre-tax IRA doesn't have near as much money in it.
Like I was saying it seems that you can the withdrawal with the 5 year rule penalty free but still not clear to me how the holdings need to be allocated:
But yeah not tax free it seems ..but your income should be lower at retirement so it might not be too much.
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Why not do a rule 72t against your pre-tax IRA (enough to last until you're 59.5), and then draw from your roth after that? Unlike my situation with too much TSLA in my IRA, you have no tax consequences from withdrawing hundreds of thousands per year from your Roth (as long as it's after 59.5).
The problem is that I'm in my 30's. I do have my 401k, HSA and a trading account with TSLA. I'd like to possibly retire in my 40's. The smartest approach for me will probably be focusing on growing all my other accounts and not touching my Roth. Tax-free at 59.5 is just too good to mess with.
adiggs
Well-Known Member
Since I mentioned the 72t distributions, I'll add a bit more. I don't know the mechanics at a detail level where I would take advantage on my own. Fortunately, Fidelity has a financial manager assigned to my account (apparently when you have enough money, they like a personal touch - probably to increase the odds I don't discover a greener pasture) and retirement planning and setting things like this up is something that they do. My point here - at least in my case, I wouldn't try to set something like this up without some professional help (whether I pay for it directly or not).
My understanding and belief (which could be wrong) is that you gain normal / full access to your retirement accounts at 59.5, so I can't think of a reason to do these except to get money before reaching that age.
I believe that yes, you can do 72t distributions from one's Roth IRA, but I don't know that. I didn't know about inability to contribute to an IRA that you are taking distributions from, but my IRAs got big enough awhile back so we've stopped contributing. I know that sounds weird and not usual, but for several years I've been more concerned with how I get through most of a decade before I have tax free access to the money and then social security, rather than how to pile up more money and spread out or avoid taxes on it.
And good news - I expect I'll need something like this, probably to start with the new year, so I might know something meaningfully new by then. I WILL be needing to do this with both a Roth and a self-directed / traditional IRA.
My understanding and belief (which could be wrong) is that you gain normal / full access to your retirement accounts at 59.5, so I can't think of a reason to do these except to get money before reaching that age.
I believe that yes, you can do 72t distributions from one's Roth IRA, but I don't know that. I didn't know about inability to contribute to an IRA that you are taking distributions from, but my IRAs got big enough awhile back so we've stopped contributing. I know that sounds weird and not usual, but for several years I've been more concerned with how I get through most of a decade before I have tax free access to the money and then social security, rather than how to pile up more money and spread out or avoid taxes on it.
And good news - I expect I'll need something like this, probably to start with the new year, so I might know something meaningfully new by then. I WILL be needing to do this with both a Roth and a self-directed / traditional IRA.
I didnt have much of a saving and two years ago i got a good paying job that let me tuck away 5k or more each month. The down side is no 401k and ira can only hold 6k so most of it is in taxable acct.
My understanding is since $40k is the upper limit for tax free captial gains, along with $12k tax deduction thats $52k single or $104k married that can be pulled out tax free each year. I could live pretty comfortably off that.
I still feel the 4% makes sense (you should at least be able to average more than 4% returns each year). So that means Ill need 25 x $104k = $2.6 million in my account.
So thats my goal for the next 10 to 20 years. Still a way to go. But i think i can get there.
My understanding is since $40k is the upper limit for tax free captial gains, along with $12k tax deduction thats $52k single or $104k married that can be pulled out tax free each year. I could live pretty comfortably off that.
I still feel the 4% makes sense (you should at least be able to average more than 4% returns each year). So that means Ill need 25 x $104k = $2.6 million in my account.
So thats my goal for the next 10 to 20 years. Still a way to go. But i think i can get there.
Is anyone planning on selling covered call for retirement? For instance right now you could sell a September 2021 calls $4000 strike for $230 If you have 400 shares that's $92K for the year. Can Tesla double? yes but I bet you will get lots of chances to close that trade early for a profit.
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Why not wait until the S&P 500 inclusion is announced? The premiums should be higher from the squeeze.
Yeah of course specially when the IV gets super high. It was just an example.
Is anyone planning on just selling premium to fund their retirement until TSLA peaks? I'll be able to retire when TSLA doubles from here, but I would still be reluctant to begin selling at that point. Seems like premium could be had that would provide enough of an income until the stock really hit it's stride.
I have been the beneficiary of a modest generation skipping trust for going on 40 years. The trust pays income to me, but the principal will go to who I designate in my will, avoiding any inheritance tax. The trust is held at an established, fairly conservative institution, with an approximate mix of 80% stock, 20% bonds. The annual benefit to me has been 3.85%, adjusted every three years. The trust principal is now worth 4 times what it was when I received it.
Not investment advice, just my experience with a well managed (imho) investment trust. My personal savings are managed by the similar firm, with similar results. I tried some investing when I was younger, and had some fun, but for me it’s best left to the pros.
Not investment advice, just my experience with a well managed (imho) investment trust. My personal savings are managed by the similar firm, with similar results. I tried some investing when I was younger, and had some fun, but for me it’s best left to the pros.
adiggs
Well-Known Member
I've been thinking this, and doing it to some degree (I started back in March). I've also learned the last month that selling premium can be very stable month to month (mostly when the share price is very stable), and it can also be very lumpy, with some months showing large realized losses from the option sales and other months showing very large realized gains.
So you will at least need enough resources available so that you can handle these large swings.
If you have enough resources, then you can go WAY OTM. And that doesn't protect you from the sort of dramatic upward moves we're seeing. As one example from my life:
- I sold 1650 calls on 8/12 with the shares at ~1500 and a 2 day expiration on 8/14.
- On 8/13 (the next day), the shares were moving so fast ($1600 share price when I rolled) and 1 day to expiration, that I rolled those out to 2300 calls expiring on the Sep monthly (Sep 18 I think). I liked that new position a lot more and figured that'd be good.
- Today, 8/27 (4 days later and 3 weeks to expiration), I've rolled those 2300 Sep calls out to 2600 Oct calls. Any bets on whether I'll be rolling these again because we're hitting 2600 before mid-October?
On each roll, I've picked up a net credit, so the cash balance is increasing in the account. I've also realized some large losses on the closed positions, while opening larger and larger positions. And I will eventually, mid-October in this case assuming no further rolls, see all of those losses reclaimed and a "small" net profit consistent with an income strategy being realized.
More details about all of these trials and tribulations await in the wheel thread - the point for the moment is that selling premium isn't necessarily a smooth and steady monthly income stream. I'm comfortable that these trades will eventually be profitable, but some of them may take months or longer to reach that point while showing large losses along the way. The cash balance is increasing along the way, with the profit eventually being realized due to shares starting to trade sideways or down for a few months OR I stop rolling out the contracts and accept assignment.
(All of these comments are in relation to covered calls; they apply equally to cash secured puts with the share price going down)
In brief - there's more to know than just "sell options and collect premium"; like any strategy, there are risks, there are circumstances where the strategy works well and badly. And in the case of options, plan on at least 30 hours of education (MHO) just to have a basic understanding of option dynamics and to get started.
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