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Ivo251900
Posts: 4
(@ivo251900)
Eminent Member
Joined: 3 months ago

I am 41 yrs old born (08/24/1978). Will like to start taking Sepp on set 2019.
IRA balance use 7/31/2019 since is the higher statement balance for the year usd 197.420
Divorced with 2 doughters oldest 9 yrs (both beneficiaries)
will like to max sepp and the calc is form 7575/yr.

I used july rate of 2,50%.
I am a non resident alien, I think this doesnt matter but just in case.

Please advice, if my clacs and considerations are correct

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8 Replies
Tracy
Posts: 7
Admin
(@tracy)
Trusted Member
Joined: 6 months ago

Hi Ivo251900, I received the same result of $7,574.55 using the information you provided in 72tNET.com SEPP Distribution calculator (with a single life distribution factor of 42.7 and Amoritization Method). And I confirmed these results with the CalcXML and BankRate.com calculators.  Before you begin the 72t though, please consider other options to earn an additional $20 per day ($7,575/365). Once you start the 72t, you will need to continue for more than 18 years, until you are 59 1/2. This will leave you with $130,000 to retire on by age 60, according to the BankRate calculator ( https://www.bankrate.com/calculators/retirement/72-t-distribution-calculator.aspx ). Let me know if there is more I can help with.

- Tracy

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6 Replies
Ivo251900
(@ivo251900)
Joined: 3 months ago

Eminent Member
Posts: 4

Thank you tracy. The purpose of starting sepp is not to use the money for retirement yet, since I am still working and planning to do so until 50 yrs old.

Since i am not a us resident and I dont have income in the us, by starting sepp I will be paying income tax only on the sepp distribution at a 10% bracket, which i consider a low tax bracket, vs waiting until 59,5 and then probably have to pull much more money early and probably a higher tax bracket. 

Does it make sense to you?

thanks

ivo

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Tracy
Admin
(@tracy)
Joined: 6 months ago

Trusted Member
Posts: 7

Hi Ivo, I understand and thought about the same technique for my own situation. Another idea my Accountant suggested is a series of Roth conversions. If you convert the IRA in $7,000 increments you'll pay the same taxes as you would with a 72t but you could miss a year (or double the conversion one year), without penalty, AND keep the money invested. Good luck with whatever you decide!!

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Ivo251900
(@ivo251900)
Joined: 3 months ago

Eminent Member
Posts: 4

How that works? I dont know much about it

 

thanks

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dlzallestaxes@msn.com
(@dlzallestaxesmsn-com)
Joined: 5 months ago

Estimable Member
Posts: 10

You set up a ROTH IRA account, usually at the same financial institution where you have your IRA. You do an electronic transfer from your IRA to a ROTH IRA. The amount of the transfer is taxable, but is not subject to the 10% penalty for early distributions from IRAs. The ROTH IRA then grows, and all income (Dividends, Interest, Capital gain Dividends, and Capital Gains on Sales) is TAX-FREE. When you retire, you can take out the money, tax free. Even before you retire, or before 59 1/2, you can even take out the amounts that you CONVERTED, and those distributions are also TAX FREE because the taxes are being paid each year that you are doing conversions. (If you have low income, then there won't be any tax at all.)

Any experienced tax practitioner (like Tracy's) should be able to help you, or an advisor where you IRA is located. 

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Ivo251900
(@ivo251900)
Joined: 3 months ago

Eminent Member
Posts: 4

Roth irá conversión look like a better plan. Why take out only 7000/yr? Is there a limitation ? Why not Max out the first tax bracket at 10% taxes or even the second bracket at 12% (almost the same)?

thanks

ivo

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dlzallestaxes@msn.com
(@dlzallestaxesmsn-com)
Joined: 5 months ago

Estimable Member
Posts: 10

I was about to suggest that you can convert even more. First of all, there is the $ 18,350 Standard Deduction for Head of Household tax rates. Then the 10% tax rate is up to $ 13,850, or a total of $ 32,200. But then you are also eligible for $ 4,000 of Child Tax Credits ($ 2,000/child under 17) on line 12, which would offset $ 40,000 of income taxed at 10%. This means that if you converted $ 58,350, you would have $ 40,000 of taxable income after the Standard Deduction of $ 18,350, but no taxes to pay. Therefore, if your portfolio did not change, you could convert it all in 4 calendar years, starting with 2019. (It would probably be done by 2022, even covering growth over the next 3 1/2 years by doing it now, and January of 2020, 2021, and 2022.)

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dlzallestaxes@msn.com
Posts: 10
(@dlzallestaxesmsn-com)
Estimable Member
Joined: 5 months ago

You have a unique situation as a non-resident alien with an IRA. Separate from the tax aspects, you should talk to a tax or estate attorney about setting up one or separate trusts as beneficiaries for your IRA in case you die before they reach majority (18 or 21), and appoint a trusted trustee to handle the Trust(s) on your behalf for them. Then send this legal document to the financial institution where your IRA is located.

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