I want to start a 72t on two 401-k’s and two IRA’s totaling approx. $320k. My birth date is 3/17/1957. I want to avoid the 10% penalty. I am not currently employed with either 401-k’s employer. I am 54 years of age and the life expectancy calculator
disclosed 30 years. Using the SEPP calculator at 2.73% interest for August 2011and using theAmortization Method disclosed annual payments of $15,593.80 leaving approximately $12,474 after a 20% income tax rate. I am not sure when my date of first distribution
is or even what a first distribution is? (is that when funds from my qualified plans are sent tome?) What is my next step?? What do I need to advise my qualified plan custodians to get things started?? Please advise…
2011-08-29 01:59, By: Willie, IP: [126.96.36.199]
There are several steps to take, but contrary to popular misconception, you do not formally notify IRS that you are starting a SEPP 72-T plan.
1. Decide what your cash needs are for the balance of 2011, for 2012, and then umtil you are the later of 59 1/2 or 5 years after your first distribution/withdrawal from your IRA account(s).
2. Determine what your tax picture looks like for 2011 and 2012. You have an option in the first CALENDAR year of taking EITHER a full annual distribution, or a PRO-RATED distribution based upon the months left in the year ( if starting in Sept, then 4/12).
If possible, the best situation is to be in a 15% income tax bracket. If so, then you just increased your cash flow by not having to give IRS 20% and then wait for your refund. ( IRA distributions do not require a 20% tax withholding, but 401-K distributions
3. You at the ideal age to start because 5 years (60 months) from Sept 2011 you will be 59 1/2, so it works out perfectly.
4. Decide which broker or mutual fund family you want to deal with.
5. Determine if you need all of the balances in all of your accounts to generate the cash you will need (after taxes). If not, then use the “reverse calculator” on this site to determine the minimum balances you need in order to generate your cash needs,
and transfer that amount trustee-to-trustee in total from your various accounts into a new separate IRA account. The excess can stay where it’s at, or be transferred similarly to another account. This excess can be used for emergencies over the next 5 years,
if necessary, without jeopardizing all cumulative distributions to the 10% penalty at some time before you are 59 1/2.
6. If this sounds confusing to you, then go to a tax or financial advisor who understands SEPP 72-T plans, and get the book available on this site ASAP.
2011-08-29 02:51, By: dlzallestaxes, IP: [188.8.131.52]
Beyond what DLZ said, that interest rate you quoted is only good if your first payment is issued to you by your custodian on or before August 31st, or Wednesday, which is almost impossible to do since you haven’t even consolidated your two 401-k’s into a
single IRA that would be the source of the SEPP, and then done the calculation using the combined balance in the new account, and then submitted the plan to the custodian, so they know the payments they need to start issuing. The interest rate you can use
in your calculation drops downfor first payments starting on 9/1, to the one issued for July. You do need a better understanding of how these moving parts work before trying to do this.I don’t think that you would have much luck getting a 5 year stream
of payments from both 401k custodians as your SEPP plan, and not have to do rollovers to an IRA first, but that may be possible. Have you asked them? It would be best to rollover the total that you need for the payouts thatyou want for next five years
into one IRA before starting.Ken
2011-08-29 03:37, By: Ken, IP: [184.108.40.206]