L1: 72TThank you so much for all the great information on you website!! My DOB is 12/10/1963. I would like to establish a new SEPP and take a first distribution on 5/5/2017. I have a 401k that I will be rolling over into an existing IRA. Total amount will be $625,000.00. Am I reading correctly that I can use the entire balance to calculate SEPP, and then just open another IRA and transfer 150k to cover SEPP payments? I will be using minimum distribution method Uniform tables.2017-03-16 18:00, By: Jackie, IP: [188.8.131.52]
L2: 72TNo. You can only use the balance in the IRA used for the SEPP 72-T. If you use $ 500,000 for the calculation, then there must be $ 500,000 in the account. If you only need $ 375,000 to get the desired annual distribution, then separate into two IRA’S, $ 375,000 and $ 125,000 BEFORE you set up the SEPP 72-T. Also, if you don’t need all $ 500,000 now for the calculation, then definitely split your 401-K/IRA into 2 IRA accounts first.
Are you still employed at the company where you have the 401-K ? If so, and you can wait until 1/1/2018, you will be in the “year in which you will become 55”. In that case, if you “separate from service”, voluntarily or involuntarily, at any time in 2018, you won’t have to set up a SEPP 72-T, if your employer allows you to keep your 401-K, and will permit partial withdrawals.
If you roll over your 401-K to an IRA, do it as a trustee-to-trustee transfer.Understand that the SEPP 72-T will lock you in until 6/2023, when you become 59 1/2.
Also, if there is employer stock in your 401-K, research a special tax provision called NUA (Net Unrealized Appreciation) to see if, or how, you qualify. It could save you a lot of taxes, and give you significant flexibility. (See J K Lasser Your Income Tax for a 2-page explanation, or check the website at irs.gov)2017-03-16 18:09, By: DLZALLESTAXES, IP: [184.108.40.206]
L3: 72TThank you so much for the quick response. I appreciate your help! I am no longer employed and thereis no employer stock in my 401k. Thank you again for your insight.2017-03-16 19:26, By: Jackie, IP: [220.127.116.11]
L4: 72TOne more point. The RMD method will produce a far lower annual SEPP distribution per dollar of account balancethan using the fixed amortization method. If you partition your IRA accounts as DLZ indicated, this will result in a higher value emergency fund IRA and a lower amount in your SEPP account for the same distribution amount.
In addition, the RMD method is unpredictable because it requires you to do a new calculation at the same time every year to determine your SEPP distribution for that year. That increases the chance that you might make an error in one of these calculations. If you use fixed amortization, your annual distribution remains exactly the same every year with one exception. You have a one time chance to switch over to the RMD method if you want to reduce your distribution. If you started your plan with the RMD method, there is no option to change that.
Those are 3 advantages to not using the RMD method when you start your plan.
2017-03-16 22:53, By: Alan S, IP: [18.104.22.168]
L5: 72TAlan, I had no idea that the RMD wasn’t’ as flexible as fixed amortization. That definitely makes more sense to me to use that method. I’m working with a tax advisor but to be honest he is not as knowledgeable and I hoped!
Thanks again.2017-03-17 13:39, By: Jackie, IP: [22.214.171.124]
L6: 72TFYI, there are very few tax practitioners in the country who know much, if anything, about the nuances of SEPP 72-T.Many do not even know what it is, or how it can be used for early distribution PLANNING. The participants in this website are the most knowledgeable in this specialized area.2017-03-17 15:12, By: dlzallestaxes, IP: [126.96.36.199]