Adjusting SEPP Amount in First Year

L1: Adjusting SEPP Amount in First YearHow flexible is first year? For example:
1) Age 55 this year 2008.
2) I want to start taking $10,000 (example)per quarter starting in March. (2008 would be March, June, Sept, December). $40,000 for the calendar year.
3) Do I need to continue this through December 2012, March 2013or December 2013?
4) If I should decide in June – or September – or December that I am going to need to increase (for decrease)this $10,000amount, can that be done just so that by calendar year-end, I”ve “established” my 5 years of SEPP? In otherwords, I”d actually end up with $50,000 (or $30,000) for the first year?
5) If I decide before year-end that I want to decrease from the original $10,000 BEFORE the end of the year, can I do a reverse calculation – split my IRA into 2
Thank you!2008-02-20 19:04, By: wheels, IP: [75.186.69.252]

L2: Adjusting SEPP Amount in First YearYou are making things to complicated, and wrong. You obviously do not undertand that a SEPP is a plan based upon specific calculations. Once the TOTAL ANNUAL AMOUNT is calculated, IT CANNOT BE CHANGED !!!! The frequency of payments is immaterial. The first calendar year you have an option of taking either the full annual amount, regardless when you start the plan, even if it”s in Nov or Dec, or prorated based upon the number of months from when you start ir until the end of that calendar year.
The calculation is based upon the account balance that YOU designate to be the basis for your plan, and thereby the amount that you place into this separate SEPP 72-T account. You are locked into that ANNUAL AMOUNT for5 YEARS, or until 59 1/2 if you are younger than 54 1/2 when you start.
If you think you might need to take more money out at some time within that 5-year/59 1/2 period, then if you have enough in your retirement account(s), segregate a base amount in the SEPP 72-T account, and keep the balance in a separate IRA account to tap, with the 10% penalty, if needed.
Read the other postings on this forum before you proceed further. Get and readthe book. Then meet with a financial ADVISOR, or tax ADVISOR, who are familiar with SEPP 72-T programs. Once you set up the plan, you cannot change the amount taken out in any year. If you do, you are subject to a 10% penalty on ALL CUMULATIVE DISTRIBUTIONS from the beginning of the plan.
If you have a 401-K, and are separating from service with that employer in the year that you will become 55, then check if your employer alllows you to take periodic distributions. If so, DO NOT SET UP A SEPP 72-T PLAN. You can get the distributions PENALTY FREE from your 401-K. If your 401-K or employer pension plan has EMPLOYER STOCK which has appreciated over the years, ask your HR department about NUA (NET UNREALIZED APPRECIATION) provisions (and read about them in J.K. Lasser YOUR INCOME TAX, and save yourself a fortune in taxes and avoid any early distribution penalties. (Read about this too on this forum.)2008-02-20 20:44, By: dlzallestaxes, IP: [72.81.122.222]

L2: Adjusting SEPP Amount in First YearHello, Wheels:
1) You can start a SEPP at any age but it is typical that people do not start them before about age 50 or so. Obviously, the earlier you start a SEPP, the smaller your payments and the longer they will run.
2) You need to calculate the exact payment amount that you can take not necessarily what you want to take. Vanguard has a nice brochure that you can download from their web site that explains how a SEPP plan works and how it is set up. There is also a form that walks you though all 3 of the IRS accepted calculation methods. Get this brochure and study it thoroughly for a basic understanding of how SEPP works. After doing the calculations, you will know which method works best for you and whether or not the amount you have saved is sufficient to meet your retirement income needs. Also, the IRS pretty much operates on an annual basis, so the amount that is calculated for your SEPP must be taken every year, no more and no less, until the SEPP is completed. That will be after 5 years or age 59.5, whichever is longer. You can take payments monthly, quarterly, semi-annually, or annually and you can switch frequencies if you want. Best to do that at the start of a new year but you can do it anytime. Just be very careful that the amount taken for the year of the payment frequency switch is exactly the amount calculated.
3) There are calculators on this site that canhelp you with the SEPP calcs and also with figuring the date that the SEPP ends.
4) No can do. SEPP is ALL about annuitizing your IRA account so once the amount is calculated and you start taking payments, you MUST not change the amount or you will face the 10% penalty tax on all payments received to that time and possibly interest and other penalties as well. While SEPP does allow us to get at our retirement money early, there are some strings attached and this is one of them.
5) The only thing that you can do to reduce your SEPP payments is to do a 1-time switch from the amortization or annuitization calculation methods to the RMD method. This cannot be undone later without busting the SEPP so be careful with this.
As you can see from the answers you are getting, SEPP provides a method for early access to one”s retirement funds but not unfettered access. There are conditions for this access and we have to meet them or get into trouble with the IRS. That”s not something that most of us need, so itis best avoided via careful planning.
Ed2008-02-23 09:03, By: Ed_B, IP: [67.170.159.37]