72T Accuracy

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L1: 72T AccuracyThx in advance for taking the time to read this! Just trying to make things simple and clear for me – I retired and received a lump sum in July 2008, did a transfer of all monies directly from my employer to a financial institution. After about one month (and losing $ of course), I did another direct transfer of the current balance from that institution to my bank and put it in CDs (I never rec’d a check in my name). Is that ok? I’ve read thatthis isnot considered a “rollover” and you can do this more than once in a given year. (A rollover you can only do once a year?) If I plan on setting up a 72t beginning January 2009, usingthe fair market value of the CDs as of 12/31/08, and use the calculators on this website (choosing an appropriate mid term rate from the Nov. or Dec. AFR tables, less than 120%), am I satisfying all the IRS requirements? Also, there is a very small portion of this lump sum that contained “after-tax” monies. Is that a problem?2009-01-16 16:58, By: Jan, IP: []
L2: 72T AccuracyJan… As long as they were directtransfers, your should have no problems with the IRA rollover rules. Your plans for initiating the SEPP are also right on target.I’m assuming that the funds are currently in an IRA. If yes, it would have probably been better to have removed the after-tax contributions before the transfer initially occurred. Now that they are in the IRA, they are pretty much there forever. Having after-taxdollars in a IRA isn’t evil, it merely means that all distributions occur on a pro-rata basis based on the ratio of after-tax dollars to total dollars. 2009-01-16 17:30, By: Gfw, IP: []

L3: 72T AccuracyThank-you for the answer! Is there anything I need to do or watch out for, going forward, regarding the after-tax dollar amount included in my IRA total amount? I’m sure I’llhire a CPA(hopefully acompetent individual) to doour taxes (I’m married)…2009-01-16 20:59, By: Jan, IP: []

L4: 72T AccuracyYou need to file Form 8606 to report the amount of after tax dollars rolled into your IRA. These forms are cumulative with any prior 8606 forms from having made non deductible contributions potentially as far back as 1987.The latest edition of the Form you have filed will show your remaining basis. This form is also used to report your total annual distributions and will generate the ratio of your distributions that are tax free, ie a return of your basis. You will have to file one every year you take distributions, but it is quite easy and will save you tax dollars. This has no affect on your 72t plan, which is measured on your gross distributions, not just the taxable portion.Using CDs for your investment in a 72t plan will require you do have enough free cash available to make your annual distributions if you wish to avoid the CD early withdrawal penalty, that is the bank penalty. Banks are not going to waive your penalty in most cases unless you establish that up front with them, and in the current environment it may not be possible at all. You may be able to ladder the maturity dates on the CDs so that there is always a maturity that can be used to fund your 72t payment and therefore avoid the bank penalty issue.2009-01-16 21:21, By: Alan S., IP: []

L5: 72T AccuracyThank-you for the detailed answer! It’s really fustrating trying to find the correct answers .. I’ve talked to four different tax people (three were CPAs), beforeposting any questions on this discussion forum. Also went in to see the local IRS office and subsequently called the IRS hotline; the local office is not trained in 72t info, and the hotline will only discuss the RMD plan! Not one of the CPAs asked anything about pre or after tax monies, or my rollover question – just kind of stumbled on verbiage about these issues. And my bank will only calculate figures on the RMD method, not annuitization or amortization,and they are not responsible for the accuracy, so they say. This website is a huge help!! Thx again.2009-01-17 16:45, By: Jan, IP: []