59 1/2 last withdrawal query
L1: 59 1/2 last withdrawal queryI started my SEPP when I was 52 (so more than 5 years has elapsed), using RMD, my birthdate is October 10th. I am taking my current SEPP in November 2017, am I still required to take a distribution in the year I turn 59 1/2 (2018), or can I forego that withdrawal. Either way where can I see the written rule that covers it. I am more than confused on this issue and I cannot believe I am the only one. Thanks, and keep on smiling :-)2017-10-15 00:27, By: smilingjay, IP: [22.214.171.124]
L2: 59 1/2 last withdrawal queryThere is no on point rule regarding the final year distributions options. Formal rules are limited for SEPPs, mostly to RR 2002-62. The rest has evolved through PLRs and IRS practices. Obviously, this is not a good situation.
For a plan with a modification date at 59.5 when there has already been 5 years of distributions, there are 3 options. Take out 0, a full annual, or a pro rated by the month total. Presumably the IRS has allowed all these options because SEPPs are calendar year plans and distributions are reported in the usual calendar year 1099R regimen. When you reach 59.5 you plan will end before the end of the last calendar year of your plan. Since the calendar year is not completed, there is no requirement to take ANY distribution that year, but if you choose to, you can take the same distribution options you had in your first year, which is pro ration or full annual. The IRS is not going to bust the plan if you take distributions in the last year that would have been valid for the first year or any full years in between. For example, if you have been taking monthly distributions you can continue them right up to the final month of your plan without a problem.
But with this final year flexibility, you might as well use it to your advantage. If you need the money before the plan ends, you can take the SEPP distributions (pro rate or full) and if you would rather preserve your IRA balance for retirement, then you can cease distributions totally in the final year. Your plan ends 4/10/2018, so after that date you can take out as little or as much as you wish. The 1099R coding will then change to code 7, normal distribution. Unless I really needed funds before 4/10, I would wait until after the plan ends so you do not end up with 2 1099R forms with different codes in Box 7 to report.
2017-10-15 19:14, By: Alan S, IP: [126.96.36.199]