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Secret IRS Rule 72(t)! | Eric Cooper Shares Early Withdrawal Hack!
641 Plays10 months ago
Join Eric Cooper and Stephen Baughier with host David Baughier for a fun-filled, informative deep dive into the world of IRS 72(t) Early Withdrawal Strategy on "Forget About Money" podcast. 🎧
Chapters 📚
0:00:00 Introduction to Financial Independence and 72(t) Strategy 🌈
0:01:28 FinTalks Cruise Shenanigans and Bets 🛳️💬
0:02:56 Drama-Free FinTalks Cruise 🤿
0:04:45 Ski Trip Injuries and Retirement Decision 🎿⛷️
0:06:10 Bougie the Cat 🐱🏡
0:07:15 Military Recruitment and Son's Future Plans 🪖🌟
0:09:10 Early Retirement Obstacles and Financial Planning Shift 💼🔄
0:10:54 Mystery of 72(t) IRS Code and Recent Changes 🕵️♂️🔍
0:14:15 Eric's Financial Snapshot and Approach to 72(t) 💰🤓
0:16:27 Stephen's Inquiries and Simplifying 72(t) Explanation 🤔🗣️
0:19:37 Detailed Discussion on 72(t) Mechanics and Methods 🔧📈
0:22:33 Choosing the Fixed-Term Annuity 💹
0:23:11 Resourceful Websites for Financial Planning 🌐📚
0:24:14 Exploring Different IRA Methodologies 🤖🔬
0:25:40 Flexibility in Adjusting Withdrawal Methods 🧘♂️🔄
0:26:08 Transitioning from Landlord to Traveler 🏡✈️
0:26:58 Embracing the 72(t) for Financial Freedom 🤗💸
0:29:41 Detailed Itinerary of Travel Adventures 🗺️🌍
0:32:08 Understanding the Rule of 55 📏👴
0:34:11 Tips and Cautionary Tales for 72(t) 🚨💡
0:36:16 Timing Considerations for 72(t) ⏱️🤔
0:37:36 Reflecting on High School and Sibling Rivalry 🏫👬
0:40:22 Light-Hearted Banter and Accent Challenges 😂🗣️
0:42:38 Hilarious Sign-Offs and Goodbyes 😆👋
Hosted by: David Baughier and Guest Host Stephen Baughier
Social Media: @forgetaboutmoney
YouTube: @forgetaboutmoneypodcast
Website References:
Recommended
Transcript
Introduction to 72T Withdrawal Strategy
00:00:00
Speaker
For many in the financial independence community, you want to access your money before traditional retirement age. Today, Eric Cooper and my brother Stephen talk about the 72T withdrawal strategy and why you shouldn't fear it. Here we go.
Recap of the First Annual Fintox Cruise
00:00:16
Speaker
Today we've got Eric Cooper and Stephen Boyer on the podcast, and eventually we might get around to talking about 72T. There are a few T's that people are fearful of. I think Mr. T might be one of them.
00:00:30
Speaker
Low T might be another one, and then the 72T. So we might get around to talking about the 72T, probably can't help you too much with the other two Ts, but right now as we record this, it is, wait, is it the first?
00:00:45
Speaker
It is. Rent is due. It's the very first day of March. Welcome to the new month. And Eric and Steven were both on a cruise fi. Is that the name of what it was called? Steven? Fintox cruise. Fintox cruise. And Amber Lee Grant put that on. Was this the first Fintox cruise that has been put on? Yes. Yeah. It was the first annual, I believe she's going to try to do it every year from here on out.
Cruise Anecdotes and Friendships
00:01:12
Speaker
I think she had initially thought that she was gonna have about 10 to 20 people.
00:01:16
Speaker
And it ended up being 65. So a lot of demand for it. We had a good time. And so she's going to keep doing it every year, I think, as long as there's demand and as long as she's interested in doing it. Steven was a wild man on the cruise. That's what he's known for. It's a lot of fun. You got to watch out. Maybe she, maybe she won't invite him next time. We'll see. Oh, hey, Bougie. Bougie is Steven's cat back there. Might be the star of the show today. By the way, David. So she climbs off that flat wall. You owe me 20 bucks.
00:01:44
Speaker
I do owe you 20 bucks, 20 bucks. What do you, what do you, wait, wait, wait, whoa, whoa, whoa. Hold on. Steven didn't know. Wait, you owe him 20 bucks for, did you tell him you're going to give him 10? There was this little bet because David said, oh, Steven will never join us. It's like, he'll join us. It's like, I'm going to have to join us. So we, you bet me 20 bucks. He wouldn't join. Well, he's here. And he's looking good. He's got all the new muscles. And I'm out of 20 bucks. He said, Eric says you bet.
00:02:14
Speaker
Yeah, you'll be waiting a while. No, you'll get it. You'll get it. He's going to write you a check and it's going to get stuck in the mail for about 30 days. Yeah. Write a check. I'm going to get 10 bucks. I'm going to demo him the other 10. So we're going to split it. Sweet. I figured that you got him on. Teamwork, baby.
Travel Adventures and Weather Challenges
00:02:32
Speaker
Hey Steven, before you came on, Eric was talking about how you've been working out. Is that true? It is not true. I don't think it is not true that I've been working out pictures. I have pictures. I continue working out because I want to see these things. I want to check out and see what AI produced. Yeah. Probably going out with six fingers on each hand. Can't buy misspelled on his t-shirt. That was a fun time though. We had a really good time. I can't wait for next year.
00:03:02
Speaker
Any drama that you want to share with the entire financial independence community right now? Both of you. Everybody got along. It was fantastic. We all had a great time. Amberlee sent me this. I'm supposed to read this.
00:03:16
Speaker
No drama happened on the cruise. We all had a good time. So you all had to sign- We signed NDAs, non-disclosure agreements. We're not allowed to discuss what goes on on the ship. Or who left and did not come back. Wait, where did you go? Was it Cancun? We left with 65 and we came back with 63. Two people, something happened.
00:03:38
Speaker
Did you go to Cancun? Where did he go? We went to Costa Maya and we also went to Cozumel. Ah, nice. Steven and I were supposed to go scuba diving, but that didn't happen because the winds were too much and we couldn't get into port. Did Steven tell you he can't swim? He's in the Navy. He can swim.
00:04:02
Speaker
He was in the Navy, right? Yeah. People don't know this, but in the Navy, they let us use floaties. So I figured I would just bring my floaties to go scuba diving in. Yeah. Did you know that they just reduced the standards again to the Navy? Now they're going to give you like a life vest and say you're good. And that's where we're at right now. We're at an all time low for our military recruitment.
Aspirations for Family and Future
00:04:26
Speaker
I don't know if anybody knows that, but it's kind of understandable.
00:04:29
Speaker
Oh, wow. All time low. Yeah. They might take me back. Yeah. Well, I'm looking to try to get my son in the Air Force Officer Program. So we'll see. We should hear something in this month, a couple of weeks, hopefully. Yeah. He's graduating in just a few months. Proud of him. Yep. Eric, we're not going to get to 72T quite yet.
Ski Trip Mishaps and Humor
00:04:49
Speaker
Right. Can you raise your right hand and repeat after me?
00:04:52
Speaker
I think I know where this is going. Um, so this is, this is where I had a really bad injury on my, all right. So can you see this? Wow. So I went skiing, um, went to Colorado last week for Keith Nurgent's birthday.
00:05:13
Speaker
We had a great time, went skiing, and I got two injuries. I broke a toe, separate incident. That was a cooking injury. And then this incident was getting out of the hot tub. And no, I wasn't drinking. I know that was the first thing in your mind went to see, but I was not drinking. It was 12 o'clock in the afternoon. I was alone, actually. They had gone skiing and I was sitting back and joined the hot tub and get out.
00:05:35
Speaker
And I go to like step back and the stairs slip. So I go crashing down and pop my stomach as well as my elbow. So yeah, fun times. But it was still a really great trip. I did not get injured skiing, just cooking and using hot tub. So my toes are taped together.
00:05:53
Speaker
Alright, so if we were going to come up with an actual story that sounded cool, what would we say? Because the stairs slipping, I think. I don't think anyone has ever said that in the history of accidents. The stairs slipped. Okay. Steven, you're not going to say anything about this throne that he's sitting on? Oh yeah, check out my chair. Oh, I thought that was like, is that his chair? I thought it was like a big fireplace behind him.
00:06:13
Speaker
And he was just sitting again like a shorter chair. I thought that thing was like some piece to the wall or something in the background. Okay. That's how highly he thinks of himself. Where are you right now? Is this your house? Yeah, my house. Come visit. Can you say your address real quick? I'll tell you it's an old move. So it's a Victorian house. I have 14 foot ceilings. So I don't turn on the heat very often. That's why I've got this sound. Heat's expensive and I'm very high. Thank you.
00:06:39
Speaker
You said Louisville? Yeah, Louisville Kentucky. Yeah, it's always on one of those top 10 places. Yeah. Like affordable and cost of living and all that. It's a fun town to come to. Got all your favorite parts. That was in Nashville. I was in Nashville for a few years and, you know, just a little bit south of you. But I love that area. I would love to move back to that region at some point. And I have considered Louisville. I have rental properties for sale. Maybe we can make a deal. Let's do it. Very nice. Yeah, I know you're setting me up for this transition right now.
00:07:08
Speaker
I'm going to do a 31 exchange and then I'm going to move to Warner Robins and come visit Steven.
00:07:15
Speaker
Yeah, Steven, what's going on with Robbins right now? Can you give us an update on your fight community? I can, but maybe that's another episode. I think, uh, I think the 72 T is this, the focus of the conversation today.
Achieving Financial Independence and Camp Phi Experience
00:07:27
Speaker
Right. So Eric, you are, when did you actually hit fire? So I had fired, uh, when I recognized I hit five was probably around 2019. I was sitting at work. I had a really crappy day and I Googled how much money do I need to retire from and up pops Mr. Money mustache.
00:07:45
Speaker
So I sent him a case study of my finances. He's like, you're good to go, dude. Just, you know, whenever you're ready. Then COVID hit. So then I decided to hang out and continue working remotely and just taking it easy and join that, which was fantastic. And then they called us back to the office.
00:08:03
Speaker
And that was not great. I walked back in and I was like, I can't do it. So after 22 and a half years and one week after attending Economy in Cincinnati in 2021, I put in my resignation. And the very first week of January,
00:08:22
Speaker
the week after I retired, or the week actually that I did retire, I went to my first Camp Phi. That's where that's seated. And about 35 other amazing people who have become great friends and travel partners. And so Steven, thank you for that. You're doing an amazing thing for our community and bringing people together and making friendships. And really, the difference in what my retirement is now as a result of attending Camp Phi and economy,
00:08:49
Speaker
I can't even imagine what it would be like having not met these people that are part of our community because it's so life changing so thank you awesome course. First off congratulations that's how are you comfortable sharing your age how old are you i'm fifty so i retired i fired forty seven.
Navigating Early Retirement Fund Access
00:09:07
Speaker
I had a very fat 401k at that point and didn't realize that I had done everything right, so I was kind of accidental. When I sat down and looked at the numbers, then it started making sense. I realized, well, I've got rental properties and I also have this fat 401k. What can I do to access that money? I can't touch it. I'm not 59 and a half.
00:09:31
Speaker
And that's when I googled, how do I access my retirement funds early? And that's where 72T popped up. And it's been a huge change in life for me in the last year that I implemented that, which was on December 29 of last year. So it's allowed me to have a thumb bucket to travel and do all the things that I want to do, which otherwise I probably wouldn't do because I was living off my rental income.
00:09:55
Speaker
And that's something that a lot of people, when you first start investing for retirement, you think 65 years old, 60 years old, or 59 and a half. But in the early retirement community, it's much different because you might retire it
00:10:10
Speaker
35, 43, 47. And if you just went through the traditional retirement advice, it would be just max out your 401ks and IRAs, but then you find yourself early retired and then having an obstacle to overcome to access those funds.
00:10:29
Speaker
that you might need to live on. So I do think that we as a financial independence community need to do more about talking about how to close that gap, whether it's saving more in a brokerage account during your investing years, while also building a robust traditional retirement account like a 401k, 403, IRAs, those things. But if you do find yourself
00:10:56
Speaker
early retired and needing the money or even wanting the money for whatever reason going on in your life. There are ways to access it that we're not that educated on, right? I would agree with that. In fact, the first campfire that I attended, I shared with the community where my position was and
00:11:16
Speaker
that I was planning on doing 72T and there were audible gasps and like, oh, you can't do that.
Advantages of 72T Strategy
00:11:21
Speaker
It's too restrictive. And that sent me into a little bit of a panic because that's been part of my plan. And Fidelity, you know, when I met with them, they said, yeah, that's a great idea. They signed off on it. So I was concerned when I heard that. So I waited two years.
00:11:38
Speaker
And then I went to Camp Phi in Colorado last year, and I met Jolene and Darren Unlet. They had just announced that they were going to do a 72T. So I immediately went over to there. We had this long discussion about it.
00:11:55
Speaker
We both decided this was the right opportunity for us. They're doing it because they've got really large 401Ks as well. It's something that works for me. Otherwise, you've got all this money that you can't access and you can't enjoy it. And it's going to continue to grow and turn into a tax bomb that you're going to have to pay large tax dividends on in your 70s. So my thought process is why not use the money now
00:12:24
Speaker
when i'm young enough to enjoy it and injured and sustain more injuries with it but enjoy it enjoy life and also take a little bit of that tax burden away when i'm older because now i'm in a low income tax bracket which is fantastic because i can enjoy that money and i'm still not being taxed heavily on.
00:12:46
Speaker
Eric, um, where does the number 72 T come from? I don't know about this 72. Um, and I don't know about the T honestly. Uh, and so, you know, say that IRS code and I probably some inside joke between two people at the IRS. Only two people know what it really means. I know it's a little mysterious section of IRS code that basically very few people know about.
00:13:10
Speaker
So hopefully what we'll do today is talk about it and make a lot more people in our community aware of it and not too afraid of it because it's, it's like the boogeyman to our community, but it's really not as scary as the phone. Can you, and if you're describing it to a layman in a couple of sentences, what is the 72 T? So the 72 T is perfect for people with fat 401ks who are not at retirement age yet who want to retire early.
00:13:40
Speaker
And they otherwise wouldn't be able to because they don't have enough money saved in cash, which is a reward for being a white or good girl and doing what you were supposed to be doing all along, which is saving and investing.
00:13:54
Speaker
your particular case, why did you decide 72T?
Personal Financial Insights and 72T Impact
00:13:59
Speaker
Can you give us like an overall, if you're comfortable with it, give us an overall snapshot of your financial picture and then what role the 72T plays in your specific scenario? So I'm going to get real naked here, which is a little uncomfortable, but yeah. Take it off, it's fine. I'm taking it off.
00:14:15
Speaker
So I retired with 2.5 million in my 401k, which is a lot, which is great. Fantastic. Yay, but I can't use it. So this is one great method that allows me to tap into that money and enjoy it now.
00:14:30
Speaker
I also have four rental properties which provide my main income. So the 72T is basically a means for a fun bucket for travel. For all the things that I want to do with friends, if I want to buy dinners or a night out with friends, that's where that money comes from. And I'm enjoying that. It's been a really, really fun time.
00:14:53
Speaker
Does that make sense? So for you, you had your own goals, your bills are paid and you're good to go living the high life in Louisville, Kentucky. You have a little bit of wanderlust, you want to get out there and experience the world and that, how much every year are you pulling out just for this? $20,000.
00:15:10
Speaker
So every year I'm taking a $20,000 distribution from my retirement savings. We can talk about how it's set up also, but those retirement accounts that are eligible to participate in the 72T include a 401K.
00:15:25
Speaker
four three be a four fifty seven be and your ira's show one thing that's interesting about the seventy two t is it wasn't so popular until twenty twenty two the government made some changes and how they were structuring it.
00:15:42
Speaker
And it became more desirable because they changed the interest rate they are using when calculating these distributions. The previous rules set the maximum rate at 120% of the federal midterm rate. The new rule bumped that up to 5% unless the 120% of the federal midterm rate exceeds that amount. So basically, you're getting a much bigger squeeze out of it till then in there.
00:16:08
Speaker
It takes less money to give you more money, if that makes sense, by their calculations.
Interest Rates and 72T Implications
00:16:14
Speaker
So you can have a smaller movement of your funds to an IRA that you're going to use as the seed money, and it's going to give you a bigger distribution now than it used to. So it's much more desirable than it was prior to 2022.
00:16:27
Speaker
Great. And this is where Steven steps in because you lost me about halfway through that. So Steven, please help me and everybody else. All right. So yeah, this is Steven. Yeah, he kind of lost me a little bit too. I'm not as familiar with the 72T as I wish I was. There's a couple of vocabulary words in there that I would like for Eric to elaborate on. And the first one was
00:16:50
Speaker
midterm rate and how does that affect your withdrawal amount again? So the midterm rate changes monthly and you can use either the 5% that is now the set rate from the government or you can use the midterm rate, 120% of that midterm rate. So you have to know what the midterm rate is and you can use it for the past two months back. So when you're doing your calculations, you can either use that 5% or you can use the midterm rate.
00:17:16
Speaker
So the midterm rate when I did mine was greater than I want to say was 5.75 or something like that, which is fantastic. So again, that squeezes that, that, that limit just a little bit more, a little more juice in terms of finance. And it makes it that much more valuable and gives me that much more money each year. And that is a, um, forgive me if I'm repeating something you've already said, but that rate,
00:17:44
Speaker
determines how much you're able to account. So you apply that rate to the total value of your retirement accounts. And that is the max that you're allowed to take out without penalty. So the way it works is you can move money from your 401k to an IRA. Once you move the money from the 401k to the IRA, that becomes your bucket. That IRA is your bucket, your seed money to do the 72T. And that distribution comes out of that bucket every year into your savings account.
00:18:11
Speaker
So my distribution, I took $300,000 from my 401k, moved it to an IRA. So that provides me with $20,000 every year based on that calculation. So it would be a little bit different. Okay. So five, whatever percent of $300,000 is what you can take out. And it also depends on your age. And it also depends on the max you can take out.
00:18:29
Speaker
No, you can move as much money as you want into that bucket. And the other thing is you can do multiple 72T, so you can layer them. If next year I decide I want more money, I want a bigger fund bucket, I can create a second 72T by moving money from my 401K into another IRA and then creating that process over.
IRS Calculations for 72T
00:18:49
Speaker
And they are separate, but you are taxed for both based on your income. Interesting. Being in a low income tax bracket, it's really nice to have that option.
00:18:59
Speaker
Interesting. So what you're saying is, okay, you start out with money in your 401k. Did you create a new IRA specifically for the 72T?
00:19:07
Speaker
I did. I created an IRA with the help of Fidelity. We moved that money into the IRA, and then that then became the seed money for the 401k, which are for the 72T. That money remains invested, so it's already replenished itself in a month and a half. At 20 grand, it's already back, which is amazing. Nice. David was lost. It's just my normal look.
00:19:31
Speaker
So next, let's say, okay, so we're just focusing on the IRA that you're using for your 72T. And you already said that you recouped the 20 grand that you withdrew at the beginning of this year, late last year, December 29th.
00:19:47
Speaker
And next year, let's assume that I went up to 320. Is it the same percentage of 320 or is it the same percentage of your original seed money? That's a really good question. And I've got the answer for that. There are three different methods you can use to determine how much you're going to withdraw. So in my case, my distribution will not change. It will remain $20,000 until I'm 59 and a half.
00:20:12
Speaker
However, let me talk about the I made notes because I want to get this right. It's very important. There are three different ways and three different methods that the IRS uses. And they also look at your life expectancy tables as well. So there's three life expectancy tables, uniform life timetable. That's for people who are unmarried and they basically their spouses
00:20:37
Speaker
aren't more than, I'm sorry, that's for unmarried account holders, married account holders with spouses who aren't more than 10 years younger, and married account holders whose spouses aren't the sole beneficiaries of their accounts. There's also the single lifetime table. That's me. I'm single, by the way, if anybody's.
00:20:54
Speaker
for beneficiaries who are not the spouses of the account holders. Then there's also the joint and last survivor table. That one sounds fun. Account holders whose spouses are more than 10 years younger and are the sole beneficiaries. So once you figure that out, it's really not that hard to figure it out. It just sounds hard.
00:21:13
Speaker
You determine the life expectancy table and how to calculate your SEP payments to best fit your situation. Now there are three. You think about small, medium, and large. That's the easiest way to think about it. I wanted the large. I wanted the most.
00:21:28
Speaker
So we'll start with the smallest. That's the required minimum distribution. This method nets the lowest possible withdrawal of those three different options. The calculation is pretty easy. It's an account balance, whatever you put into that IRA, divided by your life expectancy. And that is determined by an IRS table. So that number will change every year, though, because it's recalculated using that method each year. So I didn't like that idea of having to recalculate each year. That was not appealing to me.
00:21:58
Speaker
The second is the fixed amortization. It calculates a fixed payment higher than the required minimum distribution, but it may not keep up with inflation. So that's kind of your medium size. Then there's the grande, the fixed amortization. That's the method I used. It's the most complex of these three.
00:22:18
Speaker
But it uses an annuity factor to determine your separate amount. That factor has been calculated based on your life expectancy, as well as that interest rate that we talked about. That's the one I chose, and I've been very happy with it. And that distribution won't change. For every year, I'll get the $20,000 until I'm 59. And now, just after that, you can kind of understand why there's this undercurrent of fear about the 72T.
Simplifying 72T with Resources
00:22:44
Speaker
Because just listening to you, I think I understood most of it.
00:22:48
Speaker
But the people who are on this podcast right now, and many who are listening, are familiar with general money principles. And there's a lot of terminology, a lot of what-if scenarios, a lot of calculations surrounding this. So I can understand why. If you can do a Roth conversion, you can do this. Much easier, in my opinion. And you don't have to do it every year. So think about it that way. Also, there's some great websites I want to tell people about. Jolene and Darren Unland,
00:23:16
Speaker
They have a fantastic website blog that they shared their experience when they did the 72T and it's called Dare to Drawdown. So you can go to their page. They did a really nice job kind of walking you through the whole process. And I leaned on them a lot when I did mine because melody, it was Christmas time. People were on vacation and they were pushing it to other people and things kind of got lost a little bit.
00:23:42
Speaker
But I did get it done by December 29th, which was great. The other website that I really liked and was very helpful to me was MyFRS, which is My Florida Retirement System. They have a 72T calculator that's very accurate. And if you want to go in and play with the numbers and see what possibly it could do for you, that's a great resource. Just kind of input your numbers, watch the magic unfold and decide if that's the option that's best for you.
00:24:09
Speaker
and then have lots of fun. Thank you, Eric. Thanks, Eric. We will definitely put those in the show notes below. Maybe some more in the weed questions.
00:24:17
Speaker
You mentioned the different methodologies. Now, you also mentioned you can have more than one IRA that you use to receive the 72T withdrawals. Are you committed to those methodologies as soon as you start receiving payments, or can you adjust that over time? You can make one adjustment depending on which option that you choose. For me,
00:24:40
Speaker
being that i chose option number three which is the fixed annualization if i want to drop down to the size which is the lowest so if i want to drop down to that low number i can change to the required minimum distribution one time you only do it once.
00:24:57
Speaker
So that will drop it significantly. So you're not getting as much money out of that bucket. And then if you decide down the road that you need more, then you can adjust it by doing a second 72T and deciding which way you want it to be. Okay. So that was my next question. So it's toward the rules are to the account. It's not to the individual. Is that correct? That is correct. So I think the account is separate.
00:25:23
Speaker
Okay. Okay. Great. So that does allow some flexibility. You just have to think outside the box a little bit. Yeah. So if you've got a year where you're having more tax issues or, you know, for me, I'm on the ACA plan. So I have to make sure I don't take out too much money because I don't want to lose, you know, the nice subsidy, the healthcare. However, um, if I decide the following year that I want a little more money, I can do that second 72 T and, and create another bucket to pull from. You mentioned you have real estate.
00:25:52
Speaker
Yes, I am a landlord. I have been for a long time. I'm looking to get out of being a landlord. Not that it's awful, but I just, I want to travel. I want to spend time with friends and I don't want to worry about toilets or drywall, whatever. So if anybody wants to buy some properties, talk to me.
00:26:12
Speaker
I've got four, three, cash flowing properties. I'm sure you've done well. How long have you held them? Uh, my first one I got in 2004 as a rental. Uh, so from there going up to today, uh, different numbers, but they're all paid off, which is great. So they're total cash flow.
00:26:32
Speaker
And does that cover just your rental property? Everything's been covered and it's been comfortable, but I just wanted to create that bomb bucket and it has been amazing. I have done so much travel and had so many travels planned. This is absolutely the best life has been so far. So I'm super excited about it. And I think the 72T is amazing. It's not that scary. So if you're thinking about it, do the research.
00:27:02
Speaker
and find out if it's right for you and jump in. Very nice.
00:27:06
Speaker
Eric, I have a couple.
Travel and Leisure through 72T
00:27:07
Speaker
This is Steven here. I have a couple questions. One is just an easy, like psychological question. So the fact that you've sort of set up this separate account, this separate income stream to you through the 72T, whenever you took the money from your 401K, put it into an IRA that you specifically for 72T distributions, but you keep saying fund bucket. So this is the money. Is all of this money your fund bucket? Yes.
00:27:33
Speaker
Yes, absolutely. That's what it's here for. And do you think if you just had cash sitting in an account, like you had the cash, that you would be as okay spending money under the fund bucket label as if you just compared to now you have a designated account specifically for that?
00:27:53
Speaker
I have a scarcity mindset like so many people in our community. I remember my stepdad breaking into my piggy bank as a kid and taking all my money in my piggy bank so we could have gas money to get to work. We owned our own business. My first job is cleaning portable toilets, which is so fun.
00:28:13
Speaker
My scarcity mindset comes from those periods where things were mean. There were great times and then there weren't. When people don't pay invoices and you own your own business, things aren't always as great. I remember that as a kid and there were a couple of other instances in my life that also led up to that scarcity mindset.
00:28:32
Speaker
But basically, this gives me permission to spend on anything that I want, no guilt attached to it. And Mark Troutman has been such a great mentor to so many of us in creating this pump bucket concept. And I really love it. Let me talk about, I had to write down all the things I've planned this year for my 72 Teapot bucket. So I went to Egypt in November and December. Thank you.
00:28:58
Speaker
Then, of course, I went to Camp 5, Florida, in January. That was awesome. I went to Amberlee's Fintops crew in Mexico with 65 of my fellow five friends. That was in January. Just returned from Colorado, spent a week there with Keith Nugent and a few others. We went skiing in Silverthorne. Then we went up to Longmont. I got to see the five mecca there and really had a blast and got to know more people there.
00:29:25
Speaker
Then in March, I'll attend Economy in Cincinnati, really looking forward to reconnecting with everybody there. Yesterday, I booked a trip to Washington, DC in March. That's a bucket list item. I'm going to get to see the cherry tree blossoms with one of my friends who lives there, who invited me to come up. Last week, while I was in Palo Alto, I booked a trip to Spain and Portugal with some of my five friends who are in Longbox, which was fun. It wasn't planned, but they were going and they're like, come on. I said, all right, I'm going.
00:29:53
Speaker
I'll attend Camp Pi in Virginia in May. June is pretty quiet. I'm lame, so there's nothing going on. I'm just boring. June, I guess. Then July, I head to the Alps for my friend Kristin's 50th birthday. Happy birthday, Kristin. Welcome to the club.
00:30:09
Speaker
Then in November, I go to Asia for the first time. I'm going to go to Bali, a side trip to Shanghai for Amy Minkley's pie retreat. Also, this is amazing. I was able to convince two of my neighbors to go on this trip. I called them like an hour ahead of time. I was like, this is going on sale. It's going to sell out really fast. If you want to go to this retreat, get your tickets. They messaged me like two hours later after it went on sale, they got their tickets, but it sold out. I feel guilty because a lot of people in the community didn't get the tickets.
00:30:37
Speaker
but my neighbor's dead, but they're really cool. Were your neighbors in the Phi mindset? I think they're fat phi already and they just don't realize it. The more conversations we have, the more excited they get. I know they're going to love this trip. I think that they're going to meet some amazing people and it's going to be life-changing for them.
00:30:59
Speaker
Yeah. You gotta get them to a campfire. I know, campfire is what does it for everybody. Steven really does it. Campfire magic. It's responsible for unemployment going up. Campfire, congratulations Steven. You know, do what I can.
00:31:13
Speaker
Well, I can't say your story is very relatable. I don't know how many people are taking a trip every two weeks, but this sounds amazing. And I guess if somebody was listening to this who didn't really understand or didn't buy into financial independence, they would think that it might hit them as like it's slightly unrelatable because it sounds so amazing and where they're at in their life might
00:31:33
Speaker
be too distant for them to think that that's a possibility for them. But it is not special. A summary tells everybody, I'm not special. There's nothing special about it. You do the work, you be a good boy, you do your planning, and then 72 tea can be your reward. That's what worked for me. And I'm gonna enjoy it. I might even do a second one. You want to travel, Steven? Be your sugar daddy. Let's go.
00:31:57
Speaker
You're gonna get him a throne too? I've got a second one. You're gonna get him a throne. I've got a second one already. I don't have just one. Of course you do. You're gonna have two drones. 72T is one way that people can get money. He's thinking about it. It seemed to me all spinning. No, there's nothing going on up there. I'm smiling. I think he's looking out the window at his shrubbery. The car just went by something.
00:32:23
Speaker
So 72 T is one way to access funds and you travel or do whatever you're passionate about. I also stumbled upon something else called rule of 55. Now I know this is a curve ball, so I don't know if you did your homework. Oh, you did. Okay, good. So yeah, I planned it. It's great. Perfect. Well done. Can you, when would you use one versus the other 72 T versus the rule of
Comparing 72T and Rule of 55
00:32:50
Speaker
55?
00:32:50
Speaker
I think that's fantastic they're similar in some some regards and that they're both a great option for people who are not at retirement age yet so 72 t you can use it any age so long as you got a four one k and you're tired of working you don't want to be us anymore not sure your answer now if you're at the age of fifty five.
00:33:10
Speaker
and you have a plan that allows you to go in and use the rule of 55, then that is a great option for you because it allows you to leave your job at the age of 55 or older and you have access to your 401k retirement accounts, which is fantastic. So you get these tax free or not tax free, penalty free, penalty free access to your 401k essentially. But you do have to leave your job. Can't stay there. Can you do both?
00:33:38
Speaker
You could do both, but there's no reason to. If you are age 55, you cannot do a 72T if you're still employed by your employer with that money in that account. So you have to be separate from your employer and then you have access to do the 72T. Now the rule of 55 says if you're 55 or older, then you can separate and gain access to that 401k money penalty free. So they're both fantastic options.
00:34:06
Speaker
Okay, that's great that you're following the rules and you've got the extra income. Are there downsides or are there, now that you've got some experience in using 72T, are there things to be aware of? Like, could you think you're doing it right? And then the IRS says next year that you did it wrong. And then there's this penalty of some kind. Can you talk about that? I'm not so worried about doing it wrong because I did the research. I feel very, very confident with my numbers. I walked through it with my neighbor who is an accountant.
00:34:35
Speaker
It's interesting because a lot of people even accountants aren't that familiar with 72T. So he did give me some inaccurate information. But I was able to to verify with fidelity that you can use either a 5% or the other method interest rate or
00:34:55
Speaker
the midterm so once we establish that that was correct the calculations are pretty basic fidelity walks you through it but my advice is don't do it in december because what happened to me as i signed up my dude was really great and is consistent and then i'm going on vacation but
00:35:13
Speaker
I'm gonna pass it over to my coworker who's gonna take care of you. Well that coworker wasn't as knowledgeable about 72T. So the information when he started going because he too was getting ready to go on vacation for the holiday. So I got passed around by a lot of different people at Fidelity and one person didn't even know what a 72T was.
00:35:33
Speaker
So they gave me the wrong paperwork. And that's when I called Jolene and Darren and said, I don't think this is right. You've been through this with Fidelity. Look at this. And they were like, no, that's not the right paperwork. So I got the information from Fidelity. I walked into the office, sat down with them. They reviewed everything on December 26, I believe it was today. And at that point, I think the day before Christmas, Christmas Eve, day before Christmas,
00:35:59
Speaker
everything was done by the 29, signed, sealed, delivered, money sent to my account. So we got it done. But the key takeaway is don't do it in the center because you risk the chance of it getting lost and not done. And that's going to change your taxes. So don't mess it up. So that's based on calendar year, not the tax year. Correct. Calendar year.
00:36:21
Speaker
And most people individually will file their tax year and calendar year the same thing. Right, but don't you have, that's not necessarily true with contributions to retargeting accounts because you have until April 15th to contribute to previous year's accounts, right? So I guess that's what I was thinking about. Am I not thinking about that correctly?
00:36:40
Speaker
Well, he's taking money out. You're talking about putting money in. Okay, so yeah, there are certain accounts that for tax year 2023, for example, you have certain deadlines within the calendar year of 2024, that you have to put the money in by. But this is money's going in a different direction. Stephen, I know you have to go. I can stay for a few more minutes. Oh, good. Stay for about five minutes. I got some questions for you guys, too. Five, 10 minutes. Do you? Who got the best grades?
00:37:09
Speaker
I did. Steven, I got the best grades, but he was right there. We were both very, I'm just gonna riff the answer right now. David, if you don't like it, don't include it. No, go ahead. We were both naturally smart. I don't know if we had much of a work ethic when it came to studying because we didn't really have to study that much. So we made good grades without putting in a ton of effort in high school.
00:37:38
Speaker
But he and I both, we were neck and neck with the grades, but I might've been just a, GPA wise, I might've been a little bit more, a little bit higher, maybe like by a 0.10, 0.1%, something like that maybe. It matters, got it. Okay, so who's the most competitive?
00:37:56
Speaker
David. Well, I don't like to say competitive. I just like to say who's better than the other person. In every aspect of life. That's what he says. He's like, yeah. Except for jump shots. Jump shots, Steven gets me every time. He's got a beautiful jump shot. He won't deny it either. No, it's good. Yeah. Swish every time, nothing but net. Who was your mom's favorite? Neither.
00:38:22
Speaker
That was a great answer, Stephen. I feel like you were pretty confident about that. Yeah, I'm pretty confident. Yeah, yeah. I'm pretty confident Stephen gets the trophy for that one. Okay. I was going to say, you can phone a friend if you need to. It's fine. Yeah, let's phone Mom. It's very cool. Mom, who's your favorite? She'll tell you.
00:38:41
Speaker
Who does your cat like better? It might be somebody we've never heard of. That's all I got. Those are my questions. Thank you. Oh, those are good questions. They're not appropriate for this audience, so we're just going to leave it. Yeah. Look, this is assuming that we have an audience. So I think anything goes. Who knows? This is a new podcast. We're just seeing where it lands. I'm already on probation with Steven. I'm good.
00:39:03
Speaker
But you're still profiting from him. I am 10 bucks, baby. That's right. Oh, you already decided to give him 10? The other 10? I'm going to give him 10. He showed up. He did his work. All right. All right. So when you go to the next Fentox cruise, which you're both going to go next year, correct? We're going to be your plants. We're getting a suite.
00:39:22
Speaker
Oh, yeah. Steven. Steven and, yeah, I didn't know we were getting a suite, but now I didn't even know I was going, but now that I know I'm getting a suite, I'm absolutely going. So can you imagine, uh, you're out by the pool and instead of the lounge chair, you got that throne. It's in there and you got a shirt off, slathered up with suntan or a sunscreen. And there's like two of them next to each other. Some wheels on that throne so we could, uh, lug it onto the ship.
00:39:48
Speaker
I actually do have a picture of Steven and his, his, uh, sun chair, like laying back, showing off his muscles. Yeah. Yeah. Steven, can you do a reenactment? Wow. There he is. You have been working out.
00:39:59
Speaker
And all the ladies swarming around like little sharks, silver-haired glistening. It's a tasty body out there on the sun deck. It was, you know, 10 minutes, I was feeling it. I was like, uh, maybe in December. There's some words that whenever you hear, it just like makes me laugh or think. Like glistening, I think is one of those words. Glistening.
00:40:22
Speaker
glistening because it was the Martin Lawrence stand up where he's like water was glistening all over your body. That's what I think of anytime I hear the word glistening. David, do you know that could be the occasion of Stephen? Do it, do it, do it. We did this yesterday. He can do your country accent.
00:40:40
Speaker
I am qualified to do it. Do it, do it. And Stephen, I was completely exaggerating, and it wasn't you in particular, it was just the way things are in your neck of the woods. Let's hear David Woods being Stephen. Actually, let's hear Stephen's exaggerated. No, I mean, I've spoken all podcasts. People have heard me, they know my accent, and they can tell if it's more southern than yours, and some of us didn't leave home and never come back.
00:41:05
Speaker
All right, we're fine. All right, David, do it. Do it justice. All right. So let's do this in turn. So we're going to do outros for this podcast. Steven, you do yours and whatever twangy voice you want to do it, and then I'll do it. And then we'll see what magical, magical voice Eric can come up with.
00:41:21
Speaker
So this is the outro? Yeah, you're just going to talk to the audience or us or whatever, and then we'll just do you, me, Eric, and then out. We may or may not use it. Well, I hope you've enjoyed this episode of Forget About Money with Eric Cooper discussing the 72T. I'm your guest host, Stephen Boyer, brother of the usual host, David Boyer. I hope you join us next time for the Forget About Money podcast.
00:41:45
Speaker
That's such a Midwestern accent. It's like a no accent accent. I guess you exaggerated in the opposite direction. Oh, I was supposed to... That was an exaggeration. I don't know what you mean. Exaggerated southern. That's how I normally talk. All right, Mr. Cooper. Wait, wasn't that a TV show? Hang on. Hang on with Mr. Cooper. Yeah. Well, you have to pay your spurs, David. You've got to do your time.
00:42:09
Speaker
I don't really, that's how you made all your money. 2.5 million star in your own, in your own TV show. It was a bad show. I finally made 2.5 million, but I'll take it. Wait a minute. I used to, I used to be in broadcasting. I can do my, uh, my sign out for one of my newscasts. How's that? Nice. Well, can you like change the name? But you could do, yeah.
00:42:29
Speaker
I don't know. Can we get sued for using somebody else's title? I don't think so. I don't know. All right. I won't do it. I don't want you to get sued. All right. Well, the three, I don't think my three audience listeners will definitely. Thank you for watching WFAM. Tune in tomorrow.
00:42:59
Speaker
That's beautiful, Eric. Great job. Thank you. It was. A lot of years with practicing that, so. All right, Eric, thank you so much. Hold on, let me turn the twang up. Let me turn the twang up. Let me hear that word.
00:43:13
Speaker
Eric, I cannot tell you how proud I am to see that flannel shirt. You're way up there in Louisville, Kentucky. I don't know if I've ever been that North, but you know, you, I do appreciate, you got a red one. I like red ones. Next time. Can you, can you wear that one? Give me a red one. I'll wear it.
00:43:30
Speaker
Alright, maybe some pictures of you chopping down a tree or something that'd be kind of cool, carving out another throne. Well, I enjoy talking to you. You seem like a really smart man. And we talked about some 72T stuff and some other money withdrawal strategies. So which I'm proud. I'm a smarter man for it. I tell you, I might not sound like it, but I am. And I do appreciate it. And is that moonshine you're drinking? Cheers moonshine. Cheers. Cheers. Same here. I actually do make my own wine.
00:44:00
Speaker
All right, Steven, I appreciate you being here. It's always a pleasure. Uh, you're going to break me. I don't know how many of these $20 bills I can pay out to these guests trying to, trying to finagle you onto this podcast, but I do what I can. I know you always add great value and it's always good to see you. So if you're still listening to this, after all this time, I really do appreciate all of you listening to this podcast and I look forward to talking to you again. Thanks David. Eric, your turn. Ciao baby. Ciao baby.