what happens after 59.5

L1: what happens after 59.5Some folks on another message board are having an argument over what happens after 59.5 and 5 years has been met. One poster says it is irrevocable and you lose access to your money (you have to keep SEPP for life) and others (like me) say you can do whatever you want with your money after that.2008-04-30 16:48, By: Three Story, IP: [67.232.87.37]
L2: what happens after 59.5Short answer is that you are right and they are wrong. By definition, the SEPP ends at the later of 5 years or age 59.5. Between 59.5 and 70.5 you can pretty much do what you want. At age 70.5, the Minimum Distribution Rules come into play.
Moral of the Story… tell them to post their questions on this site – they may actually get the right answers.2008-04-30 17:02, By: Gfw, IP: [216.80.125.206]

L2: what happens after 59.5are you just taxed regular income tax or additional tax.2008-04-30 17:11, By: keani, IP: [98.210.153.176]

L2: what happens after 59.5After meeting the 5 year and 59.5 rule and prior to age 70.5, any distributions are taxable as ordinary income.The are no distribution penalties between 59.5 and 70.52008-04-30 17:24, By: Gfw, IP: [216.80.125.206]

L2: what happens after 59.5I am a CPA, and I participate in 3 list-serves of accountants. I”ll bet that the list-serve you referenced was one of accountants, and possibly EAs (Enrolled Agents). Before I found this site, I knew nothing about SEPP 72-Ts. Now I do presentations to practitioners about them. From the reactions and questions in those seminars, and very occasional questions on those list-serves, I know that 99% of all tax preparers know -0- about SEPP 72-Ts.2008-04-30 21:54, By: dlzallestaxes, IP: [151.197.33.241]

L2: what happens after 59.5Ok guys help me out. Here is the guys argument. ”Im going to quote excerpts and then ask how anyone could interpret those provisions to purport an age 59.5 “do whatever you want.”

First it says:

Quote:

(b)
Section 72(t)(2)(A)(iv) provides, in part, that if distributions are
part of a series of substantially equal periodic payments (not less
frequently than annually) made for the life (or life expectancy) of the
employee or the joint lives (or joint life expectancy) of the employee
and beneficiary, the tax described in 72(t)(1) will not be applicable.

That says:

…”if distributions are part of a series of substantially equal periodic payments made for the life of the employee”…the tax described in 72(t)(1) will not be applicable.

It says, for the life of the employee, It DOES NOT say, for the life of the employee or for a minimum of 5 years or until age 59.5 whichever is longer AND between age 59.5 and 70.5 you can do whatever you want.

Does it?

It goes on to say:

Quote:

(c)
Section 72(t)(4) provides that if the series of substantially equal
periodic payments that is otherwise excepted from the 10-percent tax is
subsequently modified (other than by reason of death or disability)
within a 5-year period beginning on the date of the first payment, or,
if later, age 59_, the exception to the 10-percent tax does not apply,
and the taxpayer’s tax for the year of modification shall be increased
by an amount which, but for the exception, would have been imposed,
plus interest for the deferral period.

It says:

…if the series of substantially equal periodic
payments that is otherwise excepted from the 10-percent tax is
subsequently modified within a 5-year period beginning on the date of
the first payment, or, if later, age 59 1/2, the exception to the
10-percent tax does not apply,…

This means if you modify the payments within 5 years you
are going to get slapped with the penalty, or, if later, age 59
1/2…that means even though you are past the age of 59 1/2 whereby the
penalty would no longer be applicable you are going to get slapped with
the penalty BECAUSE you did NOT take the “distributions as part of a series of substantially equal periodic payments made for the life of the employee, the
one time EXCEPTION would be after you have satisfied the 5 year period
you can change to the required minmium distribution method.

Please show me where I”ve gone wrong?

The 5 year requirement means you are stuck for a minimum of 5 years before you can make the one and only change to the RMD.

If your interpretation is correct that would mean
someone could, at age 56, amortize payments for ten years to age 66,
but at age 61, since he”s taken payments for 5 years AND is past age
59.5 could stop payments altogether, then go back to work and
contribute to his IRA until age 70.5, then only take his RMD and
basically get about 40% of his retirement paid to him prior to age 59.5
penalty FREE.

How does what I just described above jive with:

(b) Section 72(t)(2)(A)(iv) provides, in part, that if distributions are part of a series of substantially equal periodic payments (not less frequently than annually) made for the life (or life expectancy) of the employee
or the joint lives (or joint life expectancy) of the employee and
beneficiary, the tax described in 72(t)(1) will not be applicable.

By the way, if I”m wrong, my client suffers no adverse
consequences, if you”re wrong the IRS is going to spank you for the 10%
penalty plus interest for all payment made prior to age 59.5.

2008-05-01 20:10, By: Three Story, IP: [24.159.42.43]

L2: what happens after 59.5Three Story,I am no expert.. just a consumer who has read up on this at this website and others, and I now havetwo 72t plans running.I think what is going on here is that you have to set up your 72t using the “lifetime of payments” calculation, but then, the way you can stop taking (or otherwise change) those payments after 5 yrs (if also at least 59 1/2) or after whatever greater # of years it takes your 72t plan to get you to age 59 /12. It it is in the following section (C) that you quoted:
(c) Section 72(t)(4) provides that if the series of substantially equal periodic payments that is otherwise excepted from the 10-percent tax is subsequently modified (other than by reason of death or disability) within a 5-year period beginning on the date of the first payment, or, if later, age 59_, the exception to the 10-percent tax does not apply, and the taxpayer’s tax for the year of modification shall be increased by an amount which, but for the exception, would have been imposed, plus interest for the deferral period.

What it says to me (the underlined portion above) is if you modify that 72t plan within the specific time frame I described in first para, and they also outline in (C) quoted above, then penalties (10% on each withdrawal taken) plus interest will be due for the deferral period (of that same time period you have taken withdrawals until you “busted” your plan). Since we know that withdrawals after 59 1/2 for one that did not use a 72t have no penalty, this means as long as you met the required distributions (as I described above in 1st para) then you are no longer subject to the “pre 59 1/2″ 10% withdrawal penaltyafter crossing the 72t”goal line” that is applicable to you, and it is not a lifetime one.
This is my non-expert explanation of how I read that. KEN2008-05-01 20:32, By: Ken, IP: [75.67.65.254]

L2: what happens after 59.5Ken is exactly right.
Someone had not been reading far enough in Sec 72t. 72t(4) is where the modification that is allowed is described. Here it is copied in total:>>>>>>>> >>>>>>>>>>>

(4) Change in substantially equal payments

(A) In general If –

(i) paragraph (1) does not apply to a distribution by reason of paragraph (2)(A)(iv), and
(ii) the series of payments under such paragraph are subsequently modified (other than by reason of death or disability) –

(I) before the close of the 5-year period beginning with the date of the first payment and after the employee attains age 59 1/2 , or
(II) before the employee attains age 59 1/2 , the taxpayer”s tax for the 1st taxable year in which such modification occurs shall be increased by an amount, determined under regulations, equal to the tax which (but for paragraph (2)(A)(iv)) would have been imposed, plus interest for the deferral period.
(B) Deferral period For purposes of this paragraph, the term “deferral period” means the period beginning with the taxable year in which (without regard to paragraph (2)(A)(iv)) the distribution would have been includible in gross income and ending with the taxable year in which the modification described in subparagraph (A) occurs. >>>>>>>>>>>> >>>>>>>>>>>>>>>>>
2008-05-01 22:58, By: Alan S., IP: [24.116.165.60]

L2: what happens after 59.5I agree with Ken and Alan here. Like Ken, and unlike Alan, I am no expert but am a SEPP owner. It looks to me like the tripping hazard here is that SEPP payment calculations ARE based upon the SEPP owners life expectancy. There is no expectancy that a SEPP will last for life. It is merely an exception to the 10% early withdrawal surtax. As Alan notes, once age 59.5 is reached, anyone with an IRA can start taking unrestricted payments without any penalty. If people were locked into a SEPP for their entire lifetime, very few of us would accept that and start a SEPP.
Ed2008-05-02 15:00, By: Ed_B, IP: [67.170.159.37]