Monthly vs. Annual Distributions

L1: Monthly vs. Annual DistributionsIf I start taking SEPP distributions monthly starting in July, when does my annual amount have to be met? End of 2006 (tax year) or after 12 monthly distributions which would be June 2007 (calendar year)? Does July 2007 start my 2nd year? When I calculate my end date it gives me June 30, 2011, but does that stop date satisfy the SEPP agreement?2006-06-02 15:36, By: Duck, IP: [205.188.116.133]
L2: Monthly vs. Annual DistributionsHello Duck:
All SEPP plans are on a calendar year basis; e.g. 1/1/xx to 12/31/xx. However, in the 1st and only in the 1st year you have a choice. You could take the full annual distribution amount in 2006; or you can distribute a pro-rata amount; e.g. 1/2 in your case. Your 2nd SEPP year starts 1/1/07 and then in 2007 and in all subsequent years you must take the full annual amount.
TheBadger
wjstecker@wispertel.net
2006-06-02 16:23, By: TheBadger, IP: [172.16.1.71]

L2: Monthly vs. Annual DistributionsDuck,
When I set up my 72(t) this year (at age 56), I started first payment on 3/30/2006, and elected two payments per year thru Vanguard, with second one for 2006 on 9/30/2006. I also chose to take full year”s value in 2006, so my semi-annual payments will remain the same thru the payment I get on 9/30/2010. Since I have to fulfill 5 years on the clock, in addition to taking the 5 years worth of payments, I have to wait another 6 months after my last payment (which will occur 4.5 years after I started) to fulfill thatqualification, so the calculator on this site shows 3/29/2011 as final date of my plan, and 3/30/2001 as first date I can modify the plan. I am sure I will wait a few more days if I elect to take another distribution after my plan is met. I have two other IRA”s, just in case I need to take a distribution (and pay the 10% penalty on just that distribution) while the 72(t) is in effect, so I don”t have to “bust” the one I am using for my SEPP universe. One more point that many have made in this forum… Do not let your administrator planthe December payment so it occurs (or is somehow not issued) too late in the month to be corrected before calendar year end. Good luck! KEN2006-06-05 05:42, By: Ken, IP: [68.160.40.232]

L2: Monthly vs. Annual DistributionsWhat Duck describes as a calendar year is actually a fiscal year. His tax year is on a CY basis. There seems to be remarkably few specific rulings out there regarding the final stub year options, specifically relative to options for distributions prior to the stub year modification date that arerequired to avoid planmodification.
Above, TheBadger indicated that all plans are on a calendar year basis with first stub year flexibility only. How does this relate to Ken”s plans for the final stub year, apparently planning to take no distributionat all in2011 prior to the modification date? Ken”s semi annual distributions seem to contemplate a fiscal year (3/30 to 3/29)rather than CY setup. Is this contrary to TheBadger”s post?
The fewer payments made per year as in Ken”s case, the more likely the final year modification date is prior to the scheduled payment date, meaning no final year SEPP payment at all.
Comments, please…………

2006-06-05 15:22, By: Alan S., IP: [24.116.165.157]

L2: Monthly vs. Annual DistributionsIt really depends.

If using the 5 year rule then there must be a minimum of 5 annual payments made during the 5 year time period. Since the owner will be over age 59.5 after the end of the 5 years, subsequent distributions would be penalty free.

The 5 year period would typically start with the date of the first payment and end 365 days x 5 years plus2 days after the start date. The final 2 daysmerely allow for two possible leap days. The last payment date calculator uses the exact number of days.

If using the age 59.5 rule there is probably a little more flexibility.As Bill would say there are 2 considerations: 1) don’t take any distribution that is not part of the SEPP; and 2) take any distribution that is mandated by the SEPP.

The typical choices would probably be no distribution or a pro-rata distribution leading to the date of attaining age 59.5. At age 59.5 (5-Year rule already met and not really a consideration) all penalties stop. Could owner also take a full year’s amount? Answer yes since it is in the terms of the SEPP Plan all distributoons must occur not less frequently than annually۝.2006-06-05 15:49, By: Gfw, IP: [172.16.1.71]

L2: Monthly vs. Annual DistributionsActually Badgar is incorrect. According to the Author of 2002-62 (M. Rubin) whom our firm as talked to on this very issue many times.He clearly stated that they are ALWAYS on a fiscal year. The 12 months starts at the time of the first distribution (ie 06/11/2004 to 06/10/2005, 06/11/2005 to 06/10/2006 and so on for the 12 month period).He also stressed many times that you must continue your pattern (systemmatic distributions means “set pattern” is how he described it). If you take a lump sum, then you must continue that “set pattern” for the entire operation of the 72(t). You can seek a PLR if you want to change this pattern after it was started is what he suggested. 2006-08-02 13:41, By: 72(t) Guru, IP: [167.80.244.204]