Changing to RMD

L1: Changing to RMDI have early retired at 50 and will be taking as large a 72t distrbution as I can.
Two years from now I should have a new career up and running and am planning to then reduce the distribution to the minimum. It is my understanding that I can do this once. If that is correct,then for how many years am I committed to the Minimum Dstribution method? Is it still to 591/2 or for some other period?2005-08-26 17:21, By: Ben, IP: [4.254.217.63]

L2: Changing to RMDThe time period starts with the first distribution from the SEPP and end on the later of 5-years, or age 59.5.
Switiching methods has no impact on the time period. 2005-08-27 16:17, By: Gfw, IP: [172.16.1.72]

L2: Changing to RMDDoes this mean that every 5 years starting at age 50 you can change your distribution amount? Thanks, Doug2005-08-28 12:58, By: Doug, IP: [68.64.84.222]

L2: Changing to RMDNot hardly – take some time to read the FAQs on this site and maybe buy Bill’s book – you are obviously new to SEPPs and their requirements.
The later of 5 years, or age 59.5, means exactly what it says. At age 50 the later of is 59.5, not 5 years 2005-08-28 13:07, By: Gfw, IP: [172.16.1.72]

L2: Changing to RMDDear GFW,
Ouch, okay I’m 59.5, can I change my distribution every 5 years thereafter. Thanks, Doug2005-08-28 20:54, By: Doug, IP: [68.64.84.222]

L2: Changing to RMDFor tax-qualified funds, like an IRA, between age 59.5 and 70.5 you can take any amount that you choose – there are no requirement. At age 70.5 you become subject to the Minimum distribution rules.2005-08-29 05:18, By: Gfw, IP: [172.16.1.72]

L2: Changing to RMDBen:
Let”s see if I understand your situation. You are leaving or have left your present job to start your own business, and you feel confident that in 2-years it will be profitable, and you will be earning the income you need and expect. Is that about it? If so then consider the following suggestion.
Rollover all of your pension and K-plan money into an IRA. Let”s assume you rollover a total of $1 million and you need $100K per year, including taxes and penalties, in each of the 2-years. Simply make withdrawals from the IRA and pay taxes and penalties. Let”s further assume you are not quite on target for your income expectations and during the third year you are $50K short, in which case you simply withdraw more money from the IRA.
The reason for this approach is quite simple, given the information provided. I think you are too young to lock yourselfinto a long-term SEPP plan when it sounds like you only need funds for a short period. I also think, though it would take more analysis to determine for sure, that it may be cheaper for you in the long run to pay the penalty for early withdrawal than you would benefit by setting up a SEPP. Remember, if you pay the penalty your have maximum flexibility to withdraw whatever your need and are not locked into an almost 10-year program.
Run some numbers using what you feel are reasonable assumptions about your situation to see which is the best. If you need the help of a professional investment and tax planner, then get their help first before you set something up that you are not used to doing. Remember that planners do this quite regularly and you are doing it for the first and probably last time.
Good luck.
Jim2005-08-29 09:37, By: Jim, IP: [70.184.1.35]

L2: Changing to RMDJim,
Thanks for such a thoughtful and detailed reply. Your assumptions are rather accurate!
I’ve considered your approach to this – taking whatI need and paying the penalty – and I’ve been discussingit with a financial planner. One idea we’ve explored is setting up the 72t, taking the max for 2-4 years, then switching to the RMD, putting whatever excess cash flow I have at that time into a new qualified retirement plan.
Instead ofthat strategy, do you think that long term I’d be “ahead of the game” by paying the penalty up front?
Thanks again,
Ben
2005-08-29 21:26, By: Ben, IP: [4.254.219.195]

L2: Changing to RMDGood morning Ben. Glad I was able to give you some useful ideas. However at this point let me repeat the first sentence of the last paragraph of my post:
Run some numbers using what you feel are reasonable assumptions about your situation to see which is the best.
You can use the Reverse Calculator and other calculators from the home page of this site to do your own calculations with your real data. It would be counter productive for me to continue guessing your situation to make calculations when you already know your situation and the calculators are quite easy to run.
One last thought: The younger your are starting a SEPP the more money you have to tie up for a longer time to produce a given annual income, which is why I think you need to ‘run the numbers’ to determine if you should or should not set up a SEPP plan.
One mor last thought: SEPP distributions are NOT eligible for rollover into another IRA or qualified plan. You could use these distributions to fund an IRA assuming you have enough Earned Income in a year to qualify for IRA funding.
Hope this helps.
Jim2005-08-30 08:37, By: Jim, IP: [70.184.1.35]