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Review of plan  


ktmacgoo
Posts: 2
(@ktmacgoo)
Active Member
Joined: 4 months ago

Hello,

Below is the template provided.  I have no current debit and $510,000.00 in saving invested in addition to IRA below. Due to unexpected layoff, the ability offset taxes on later withdrawals and reduce taxes gains in current investments looking to take SEPP in leu of full time work.  It will be primary source of income until SSA at 67 or possible job just to keep busy.

  • Date of Birth: 02/01/57
  • Age: 57
  • 72t Method: Amortization
  • Life table:  25
  • Stub Year*: 2019
  • Annual Recalc*: N/A if Amortization
  • AFR* Rate: 2.10
  • Balance(s)*: 458,224.00

I am using the Amortization method for the 5 years minimum as I don’t want to have to worry about recalculation errors.  Using Feb percentage of 2.10% if executed in April I get an annual amount of $23,746.87.  If I wanted to take monthly how would the amount be calculated?  Would there be any advantages to either of the other two methods?  Once I start I can no longer contribute to the IRA the withdrawal is being removed from but can create a new IRA for the deduction?

Thank you.

 

3 Replies
dlzallestaxes@msn.com
Posts: 50
(@dlzallestaxesmsn-com)
Illustrious Member
Joined: 1 year ago

If you were born 2/1/1957, then you are already 63, not 57 !!!! I think you meant to type your birth date as 2/1/1963.

Assuming this correction, I would not recommend to my clients at your age to get locked in to a SEPP 72-T for 5 years until age 62, especially since you may get another job within the next 5 years. I would recommend taking the same $ 24,000, or any amount as you need it, over the next 30 months until you are 59 1/2. While this will be subject to the 10% Penalty for Early Retirement, it will give you much more flexibility from a cash flow and tax/financial planning approach. The FEDERAL INCOME TAXES will be less while you are not working, but the income will be added to your income if/when you get another job. In addition, you should look at the TOOLS & RESOURCES on this website to see if you qualify for other Early Distributions which are NOT SUBJECT to the 10% Penalty.

Since you said "I", therefore I assume that you are not married. If so, then the 12% tax bracket goes up to $ 40,000, which means that you can have GROSS income of $ 52,500 at that low tax rate. In addition, when you are in the 12% or lower tax bracket, Qualified Dividends and Long-Term Capital Gain Dividends and Long-Term Capital Gains are taxed at -0- % !!! Also, I suggest that you review your investment portfolio with your broker to selectively sell items with losses, or small gains to provide TAX-FREE cash flow !!!  Accordingly, I believe that it would also be more prudent to use monies from the $ 510,000 in savings. As a matter of fact, this would be an ideal time to consider doing ROTH CONVERSIONS from your IRA. I recommend that you talk to a professional financial planning or tax practitioner to do this planning, especially in consideration of the new SECURE ACT to reduce taxes for you and your beneficiaries.

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ktmacgoo
Posts: 2
(@ktmacgoo)
Active Member
Joined: 4 months ago

Yes, correct on both accounts... birth year 1963 and single.  I have no kids or beneficiaries to worry about either.  I don’t see myself going back to a job as a career but maybe as a pathway for health benefits.  Having said that the idea would be to keep the combined  income down in the first tax bracket.

I do see your point that paying the 10% penalty vs locking into a SEPP for 5 years would probably make sense.  All these decisions are being made hand in hand with my financial advisor and CPA.  Incidentally my CPA does not seem to have real interest in exploring this thoroughly so I have schedules meeting with a new CPA who does more planning.

My original plan was rely on a income from the individual savings and plan on Annual ROTH conversions in the IRA.  I greatly appreciate your input and experience.

Thanks, Kevin

 

Reply
dlzallestaxes@msn.com
Posts: 50
(@dlzallestaxesmsn-com)
Illustrious Member
Joined: 1 year ago

Great insight in looking for a different CPA/tax professional. You might also consider an EA (Enrolled Agent). Many tax preparers are just that -- they consider the tax return to be the end product. You need someone who is experienced in "tax planning". Maybe your financial advisor has those skills, which are different from being an "investment advisor". Ironically, 90% of CPAs do not prepare tax returns for individuals, so do not use their designation as a reason to hire them. (I am a CPA, passed the exam on the first try. I am unique in my approach that the tax return is the beginning of my services, not the end. It is unfortunate that too few others take that approach. I'm 81, and have tried to encourage the next 2 generations to reconsider their goals, but many say that "they don't have the time to learn more." They spend too much time preparing tax returns at low fees, and not enough time doing tax planning for clients at higher fees.)

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