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General Questions using the template
Hi - I had a couple questions. Please let me know your thoughts.
- Date of Birth: 8/15/79
- Age: 40
- 72t Method: Fixed amortization method
- 72t Distribution Start Date: 8/15/29
- Life Table Used:34.2
- Stub Year (Y/N):
- Annual Recalc (Y/N):N
- AFR Rate: 2.03(using todays as an estimate)
- Account Balance(s): 1,009,148
- If I were to show my SEPP plan to expert to verify it what type of expert would I be looking for? I assume not a lot of people are experts in this area.
- Do you need to submit a 5359 if distribution code 2 is listed on the 1099?
- What forms do you need to file? I assume just a Form 5329 (if applicable)
- If I turn 59.5 on February 15, 2039, do I have to wait until January of 2040 before the SEPP is not subject to penalties for withdrawals?
- What does “Stub Year” mean in the form template?
First of all, you have an error in the info for your template. I think it is just a misunderstanding of terminology.
The 72t DISTRIBUTION START DATE is when you plan to start your plan, i.e. the date of the FIRST DISTRIBUTION. The date that you entered of 8/15/29 (i.e.2029) is almost 10 years from now, when you will be 50. I doubt that anyone starts planning this far into the future.
If you were planning to start soon, I would think that you meant 2/15/2020, but you might have meant 8/15/2020. Therefore, you would have to clarify'
The question about a "Stub Year" refers primarily to the calendar year of your first distribution. If your first distribution i sin any month other than January, then you have a choice whether or not to take the FULL ANNUAL AMOUNT (say $ 24,000), even if you start your plan in December, or use a prorated amount based upon the number of months from the month you take your 1st distribution (numerator) divided by 12 ( i.e. if you start in February, it would be 11/12, or $ 22,000; starting in August would be 5/12, or $ 10,000). It does not matter how many distributions you take in the first (stub) year, but the amount would be a ratio of annual amount. You could take the payments annually, semi-annually, quarterly, monthly, weekly, or daily, but the total for the first calendar year would be the same regardless of the frequency, with the only difference being whether you were taking the prorated total for that first year, or the full annual amount.
In the year that you reach 59 1/2, or when you reach 60 months, then you have to take the remaining portion of the stub ratio ( i.e. 2/12 if you started in Feb; or 7/12 if you started in August), unless you are already past age 59 1/2 or the 60 months of taking distributions.
Some CPAs or Financial Planners are knowledgeable in this area, but not many. Some of the brokers or Mutual Fund companies have a few specialists.
You need to file a 5329 only if the 1099-R is coded with a !, which is what almost all of them will be because most brokers and mutual fund companies no longer want the responsibility of determining if your calculations and date of birth are correct, and also they have no way of knowing if you already have another SEPP plan using the same IRA account balance. Therefore, expect to file a form 5329 using code 2 for a SEPP, which is a simple form that is available on all tax software.
For 2039 you will probably receive two form 1099-R, one for the first two months, before you were 59 1/2, and one for distributions after 59 1/2, unless you did not take any distributions in either of these periods.
Hello - thank you for the response. I plan to start my retirement in ten years best case scenario. Most likely though it will be fifteen years away.
If I read your response correctly, you have a choice to take partial or the full amount on the first year starting in January. If you take the full amount on the first year do you have to take any amount on the year you turn 59.5 years old?