Before You Create a Portfolio Using a 72t Withdrawal Program...

By Robert Weiss

It's no secret that virtually all 401(k), IRA, pension and retirement plan participants can suffer IRS penalties for early withdrawals. In fact, many investors know little else about the stock market or securities except for the potential tax liabilities. One method of avoiding early withdrawal penalties has been to create a portfolio using a 72t withdrawal program. Unfortunately for many investors, advisers do not accurately describe the program or forecast realistic growth in the account. In order for a penalty to be waived using a 72t withdrawal program, the program must meet the test of being "substantially equal periodic payments" as provided under 72t.

The payments to the customer are developed using sophisticated methodologies but one of the most important decisions a customer or adviser must make is the interest rate at which the payments will be based on. That is because principal is being depleted over the life expectancy of the investor and that amortization of principal represents a return of principal. In most cases, the customer always believed and was motivated by promises of an estate, but the full amortization schedule shows that at the end of his life expectancy, the customer will have nothing. It is common practice to use a very high interest rate thereby creating a larger monthly payment to the customer – therein lies the problem. Once the withdrawal begins, it cannot be changed (until of course age 62 or 5 years). If a change occurs, there is a 10% penalty! The investor can only sit idly by, watching his portfolio deplete more and more each month.

Given the nature of these complex programs, a 72t case requires a highly experienced securities attorney who can understand the sophistication such a case requires. As a securities attorney who has battled nearly every brokerage firm on Wall Street, I have the ability to stand up for your rights! I am tired of brokers taking advantage of their customers' lack of knowledge in securities. I have countless number of clients who seek brokers because they simply do not have the understanding to handle their own portfolios. They tell me, "Who else would I turn to?" After their retirement savings are left in shambles, I am the person to pick up the pieces. It's my job as an attorney and consumer advocate – I will fight for your rights. [more...]