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Jeffrey Levine: 5 Steps to Avoiding Pitfalls of Penalty-Free Early Retirement Distributions

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4. Minimize payments if distributions are no longer needed.

“If I don’t need 72(t) payments any longer, I want to reduce those distributions to the extent possible,” Levine said.

It is important to keep in mind that “you can’t stop it unless the client dies, becomes disabled or they run out of money, and none of those three are good,” he noted.

But if the client goes back to work, for example, and no longer needs the payments, you can try to “stop the bleeding or … try to limit it to the extent possible,” he said.

“In general, you cannot change the distribution that you take from year to year, and you’re not even eligible to change the method of distribution,” he said.

But he added: “The one exception to that rule is … if you start with either the amortization or annuitization methods … you can switch at any time in the schedule in a one-time only irrevocable switch” to the required minimum distribution method.

“The best we could do under that scenario is to switch using the one-time method to the RMD method and lower those payments,” he said. But he cautioned: “It’s an irrevocable switch, and you can’t go backwards.”

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