L1: 72TI have received my lump sum distribution and I have rolled over my two defined plan accounts to one IRA. I have created two additional IRA’s which I plan to roll over 500k to each leaving approximately 615k in the original IRA. I would like to commence a distribution from the 1st IRA in Sept 09 using the Aug rate of 3.37%. I want to hold off on the other two accounts in hopes that the interest rate will continue to rise over the next 4-6 months but no one knows. What date should I use for the total amount of funds in all of my IRA’s when I start the distribution for the first IRA since I didn’t have these accounts funded as of 12/31/2008. Thank you.2009-08-17 13:51, By: johnnyg, IP: [22.214.171.124]
L2: 72TFirst let’s make sure of some terminology. You stated that you “rolled over” two defined benefit plans into one IRA account. Hopefully you used the “trustee-to-trustee method” to move the money and not a pure “rollover” whereby you received the cash and then rolled it over into the IRA within 60 days of receipt. If the latter then you had 20% withheld for taxes and you must replace this 20% from other sourcesor deal with an early distribution penalty in addition to taxes. So if you will clarify this point we’ll be off to a good start.
It sounds like you have or will have several IRA accounts. You can use one IRA account for your 72(t) or you can use multiple IRA accounts to form a “SEPP Universe.” Use the “Reverse Calculator” on this site to determine the amount you will need to generate a specified annual distribution using the “Amortization Method.” Then transfer that total amount to one or more IRA Accounts. When the transfer is complete you will have the amount to use for your final SEPP Plan calculations.
IMPORTANT: The amounts you have in other IRA accounts is NOT part of your SEPP Plan universe and is NOT used in your calculations! These other amounts are ready to set up additional SEPP Plans or to use for penalty distributions for emergencies so you don’t bust the original SEPP Plan.
Hope this helps.
Jim2009-08-17 14:50, By: Jim, IP: [126.96.36.199]
L3: 72TI hope that you did not make the mistake of “rolling over” AFTER-TAX” contributions in your previous retirement accounts to your IRAs. If you did, you will pay taxes on those funds a SECOND TIME when you take distributions from the IRAs. The only way that the duplicate taxes can be avoided is to file form 8606 to report these after-tax contributions as “basis” in your IRAs. Unfortunately, this will mean that a % of all future IRA distributions will be non-taxable, but with the size of your IRAs now, this could take the rest of your lifetime.
If your “rollover” took place within the last 60 days, you might be able to reverse that part of the rollover back to your employer, and then have him make a separate distribution directly to you, and not rollover the amount that you have already paid tax on.
Further, I hope that there were no NUA ( Net Unrealized Appreciation) employer shares in your company’s retirement account. If there were, you have just cost yourself hundreds of thousands of dollars of needless taxes !!! (Search this site on NUA for further explanations)2009-08-17 19:09, By: dlzallestaxes, IP: [188.8.131.52]
L2: 72TGentlemen, thank you for your response.
To clarify, I opened up two trustee to trusteeIRA’s” which rolled my defined benefit plan accounts at Fidelity and Vanguard into an IRA in my name only. No taxes were paid during this transaction. Additionally, my lump sum distribution was deposited into my trusteeIRA” at Vanguard.
Once these accounts were set up I then set up 3 trustee to trusteeIRA’s” to transfer in kind the assets which were in the Fidelity and Vanguard IRA’s.
First all of the funds go into IRA # 1 and then # 2 and 3 will be funded again using a trustee to trusteerollover.
As I understand you Jim, account 2 & 3 don’t come into the equation until I start to distribute from them. Is this correct? If so then the IRA amount is approx 615k at the end of August which is the amount I use when I do the calculation for the 1st of September. Is that correct?
As for the comment by Dlzalles, there aren’t any NUA’s, it was just a lump sum distribution instead of an annuity.
The Vanguard accounts were set up by my union in their defined benefits plan, I didn’t make the contributions, my employer’s did. The Fidelity was a 401k plan that I contributed to ONLY, not employer. The lump sum came from my pension plan which I didn’t contribute to either.
Does this make the picture clearer?2009-08-17 20:18, By: johnnyg, IP: [184.108.40.206]
L3: 72TIf you are 55, or will be by 12/31/09, and you separated from service in 2009, then you could have taken distributions from your 401-K without being subject to the 10% penalty for early distributions. That would have saved you from tieing up those funds until you were 59 1/2. If you are under 55, or did not separate from service, then this exception would not apply.2009-08-17 20:43, By: dlzallestaxes, IP: [220.127.116.11]
L4: 72TIf you can get an 8/31/09 IRA statement (and save it) that shows the specific total value of the IRA that is funding the SEPP that starts in SEPT, then that would be the one to use. If you need to supply the “calcs” to the IRA holder for your SEPP payments prior to early SEPT,then you could even use 7/31, or a mid August amount in that IRA (as long as any transfers in or out have been completed), but you wantto document it by printing out the account value on the date you chose to use in your calcs, and saving it. I would use end of day value, so the IRA holder could agree with it if ever asked, rather than mid day moving target value. Just my opinion. KEN2009-08-17 22:35, By: Ken, IP: [18.104.22.168]
L4: 72TI’m 50 and aware of the 401k option but don’t qualify hence the addition to my IRA.
From what I rec’d from Ken I need to insure that I have a “statement date” which shows the IRA value prior to distribution whether it’s the end of August or a date in August after all the money moves. Is that correct?2009-08-18 13:24, By: johnnyg, IP: [22.214.171.124]