72t – Multiple sources for IRA ?

L1: 72t – Multiple sources for IRA ?Background: I have a client who is rolling over a 401k plan (this will of course be a lump sum rollover, about $250,000). Client will also receive a monthly rollover on his company retirement plan. Will get a monthly rollover each month of $15,000 for 60 months.
He is 56. We think we should put the 401k in one IRA and the monthly retirement rollover in a separate IRA.
Questions: 1) Do I need to count balance from both sources to do the 72(t) calculation or can we use just account balance from one IRA?I am confused on what balance amount I need to use for the calculation.Also if he gets $15,000 per month, I assume I would count $180,000 as the annual amount in this IRA? 2) Client wants to take out $5,000 per month or $60,000 per year. THis will be more than the72(t) calucation allows. Am I correct that the any amount over the allowed 72(t) will be sujbect to 10% penalty? I believe this is the case. 3) Assuming we want the highest allowable withdrawal in the calculation,I think I should use single lifeexpectancy calculation, butdo I doit on a 401k balance of $250,000or on $15,000 per month in other plan which equals $180,000 per year? Not sure which account we should use if I can separate balances and only take from one. If I need to take both balances into account to do calculation, I then assume I can take the required amount from just one of the two IRA accounts.
I know this is somewhat long winded, but I truly appreciate any input. We want to make sure we do this correct.
Thanks2004-10-15 19:21, By: Bri, IP: [67.119.61.58]

L2: 72t – Multiple sources for IRA ?I’m going to make the assumption that your client is also separating from service with his/her employer. If the answer is yes, then the best alternative is not to set up a SEPP merely take the desired annual distributions from t he 401(k) plan.
You state that he will be receiving 15,000 monthly from his/her pension plan. Are you sure that these distributions can be rolled over? You don’t give sufficient information to make that determination. What type of plan is the source of the funds?
Your questions:

Not enough information. If the $15,000/month is from a defined benefit plan it will be treated as ordinary income during the payout.
Best bet is to take the distribution of $5,000/month from the 401(k) plan. Exceeding the proper SEPP distribution BUSTS’ the plan making the entire distribution subject to the penalty.
If you must do a SEPP, then only use the 401(k). Even if (and that’s a big if) the 15,000/month can be rolled over, you could only use the amount available when the SEPP is initiated.
It sounds like you might need a whole lot more information before making any determinations or decisions. 2004-10-17 05:14, By: Gfw, IP: [172.16.1.71]

L2: 72t – Multiple sources for IRA ?Yes – client is retiring/separating.
The employee stated that $ is from his companies retirement & can be rolled over.We are confirming this with the employee.
On question #2 – does that mean that we should not do the 72t at all and just take the withdrawal with the 10% penalty?
Thank you again for your input.
2004-10-18 12:51, By: Bri, IP: [67.119.61.58]

L2: 72t – Multiple sources for IRA ?There are more exceptions to the 10% penalty than just a SEPP. Consider … Distributions made to you after you separated from service with your employer, if the separation occurred after you reached age 55.
No need for aSEPP, just set up distributions from the 401(k).2004-10-18 12:56, By: Gfw, IP: [172.16.1.70]

L2: 72t – Multiple sources for IRA ?Hello Bri:
I almost posted a reply this morning but didn’t. Now Ifeel that I must, and please don’t be offended. I have been doing 72(t) stuff for over 10 years and there are always more questions than answers. I want to make three suggestions for you as I sense you are really new to this concept. What I say is meant to help you.
First of all, go to the home page of this site and click onto the top blue rectangle on the right side of the page. This will allow you to purchase Bill Stecker’s book about 72(t) distributions. Believe me it is the most comprhensive book with useful appendices that you can ever buy. The price is cheap and IT’S DEDUCTIBLE for investment professionals, which you appear to be.
Second, don’t set up anything until you contact the advance marketing office of the mutual fund or annuity company you use, or the “back-office” of your B/D to get some good guidance for your case. (Now this is the part I don’t want you to feel offended about.) From what I have read it appears you have some real gaps in understanding about IRA and qualified plan distributions. You can get lots of material from your support structure to help fill in these gaps. When you do you’ll be better able to serve your clients and less likely to create a real problem.
Lastly, keep using this site and forum … and keep good humor about you. When you post something wrong that you think is right, have no fear, TheBadger or GFW will set you straight (speaking from personal experience) and you will be wiser.
Welcome to the world of SEPP!
Jim2004-10-18 14:16, By: Jim, IP: [68.1.157.228]