Some Basic Questions

L1: Some Basic Questions
My career was in data transmission, just plain zero’s and one’s, I saved and never really paid attention to the details. Please bare with me if I appear woefully simplistic.
I just turned 54 the end of May, and single. I am in the process of selling my home and purchasing a condo. When all is done the equity from the sale will leave me with a 50K 15 year mortgage on the condo. I don’t want really ‘retire’ completely, however I don’t want to completely live on a new lesser salary.
I’m looking into the 72T as a way to mitigate any shortfalls.
I currently have approximately 820K in an IRA and looking to draw about 50K per year. Using the reverse calculator it indicated I needed a little over 724K in a SEPP account using the amortization method.
My questions are do I set up a new IRA with the excess 94K?
Does the SEPP have to be a totally different account?
Is the SEPP account still invested with basically the same stocks and mutual funds etc. and still have an opportunity for growth?
Is a plan like this fraught with danger?
Thank you in advance for any replies, and hopefully I will not clog the forum with additional questions. However it seems every time I think I have a handle on it, more questions arise then are answered.
Thanks again. 2007-07-02 11:49, By: Padruig, IP: [75.194.24.49]

L2: Some Basic QuestionsIt”s good to see that you have worked with the calculators. Have you also gone through the FAQ”s? If not then my first suggestion is to start at the top and read them all. Many questions will be answered there and you will also think up new question that apply in your situation. Now let me address your specific questions:
My questions are do I set up a new IRA with the excess 94K? Yes. The second IRA will be for emergencies that will invariably come along during your SEPP distribution time. It”s better to tap the second IRA, pay the 10% penalty and taxes rather than bust the SEPP Plan by having to take an unexpected but necessary extra distribution.
Does the SEPP have to be a totally different account? Absolutely! You may use the same custodian but you MUSThave oneaccount for the SEPP Plan and a secondaccount for the non-SEPP IRA. Each will have separate account numbers and when you have distributions from each during the same year, the custodian will send you two Form 1099-R”s for tax reporting. Do NOT make the mistake of having several investments, like different mutual funds from one family, in the same account and trying to “designate” some of the funds as your SEPP Plan and some as your Non-SEPP Plan. It doesn”t work like that. Use separate accounts for each IRA.
Is the SEPP account still invested with basically the same stocks and mutual funds etc. and still have an opportunity for growth? How you invest each IRA is up to you and your Investment Advisor, if you use an advisor. Based on the vast difference in size of your two IRA”s, it is unlikely that you will have the same investments because the smaller one will probably have fewer investment choices. The only exception might be if you used a variable annuity to fund the two IRA”s and then you could have the same investment choices. This would be a good discussion topic for you and an advisor.
Is a plan like this fraught with danger? Not if you do it right, and if you follow the guidelines layed out on this site, then you should not have any problems. The only thing to watch out for is getting the custodian “on board” with your plan and monitoring to be sure everything is done per the plan. The only real problem is trying to make the last distribution of the year too close to December 31st. When you do this you have no time to get errors corrected. Plan you last distribution close to December 1st to avoid getting caught in this trap.
Good luck.
Jim2007-07-02 14:25, By: Jim, IP: [24.252.195.14]

L2: Some Basic QuestionsHello, Padruig:
Someone must have been paying attention to the details as you have a very nice retirement fund there. This rarely happens by accident. Good job.
Producing $50k per year in SEPP payments should not be a problem for an IRA the size of yours. A withdrawal rate of about 6.1% will do the job. I don”t know what interest rate it will take to achieve this via the amortization calculation but suspect that it will be in the area of 5% or perhaps a bit more. This is well under the current 120% of the Fed mid term interest rate that is the maximum rate allowedin the amortization calculation.
Yes, you can set up a separate IRA with the excess IRA money in your current account. This is a wise move as it gives you a source of money that you can draw upon in an emergency without affecting your SEPP.
I”m not sure what you mean by “a totally different account”. As long as the SEPP IRA and your non-SEPP IRA have different account numbers, all should be well.
You can invest your IRA(s) in a very wide variety of stocks, bonds, mutual funds, and cash equivalents. There are only a few things that we cannot invest IRA money in so the choices are quite flexible.
I would not consider setting up a SEPP plan as being “fraught with danger”. It does have to be done carefully and in complete compliance with IRS regulations but other than that, I haven”t had any special problems with it. I did a great deal of research into the 72t exception and the use of a SEPP plan to avoid the 10% early withdrawal penalty. If you follow the rules carefully, it should work out just fine. If you are not comfortable doing this, then itmight be a good idea to get some professional help with it from either a financial planner who is very familiar with SEPP plans and the 72t exception or from a good CPA who should also be familiar with this type of work. If you have a strong interest in this, I suggest that you learn all that you can about it first. Then, armed with info on how this all works, you can either go it alone or work with a pro from a position of knowledge, which will help both you and any advisor you hire.
Ed2007-07-02 14:37, By: Ed_B, IP: [67.170.159.37]

L2: Some Basic QuestionsTwo topics of warning :
1. Most CPAs haven”t the foggiest idea about the nuances of SEPP 72-T accounts, procedures, distributions, etc. You”ll get better information from the “experts” on this site. I lecture CPAs on this subject, and get mostly blank stares when I ask them questions.
2. When you state that you”ll need $ 50K/year, be careful !!! Is that before or after federal AND STATE income taxes ????? If that”s after income taxes, then determine how much the gross has to be to NET $ 50K AFTER TAXES !!!! In most cases it will be $ 70-75K GROSS DISTRIBUTION.2007-07-02 17:00, By: dlzallestaxes, IP: [141.151.86.22]