72T – SEPP

L1: 72T – SEPPHi,
I am 49 and expect a reduction in force this year from my current employer. I have $587,000 in pension and $150,000 in my 401K. I would like to draw from this amount to supplement my income as I will not be able to obtain a position with a equitable salary.
I am considering the SEPP IRA (72T) and have read a little, but have the following questions:
Specifically what are my choices regarding a custodian? Is it an investment manager, a bank or a tax accountant?
What kind of fees can I expect to establish a 72T? Are there ongoing fees?
How does the custodian earn a commission?
Specifically who holds the account? Is it a bank, an investment firm?
Is the balance insured?
My husband is 50 and would be the beneficiary. What happens if both of us die? Is there a 3rd beneficiary?2007-02-14 13:48, By: Carol, IP: [76.177.97.251]

L2: 72T – SEPPGood questions. In general, your investments can be held by the usual group of professionals that you can make investments with. You can even have multiple SEPP 72-T accounts, but we usually do not recommend it because it”s hard enough to find 1 custodian who understands this area, let alone more than one. The fees and/or commissions depend upon the investments and/or structure, and the size of the portfolio(s). If you have CDs, these would be minimal. Mutual funds depend upon load vs. no load, and if class A, B, etc. shares. If you buy fixed interest investments, usully, but not always, you will buy initial issues which have no cost to the buyer because the broker gets his fee from the syndicator. If you invest in equities, you would have comissions on purchases and sales, unless you use a very low commission brokerage (who may notknowthe nuances ofSEPP 72-Ts. If it is a large account, you might have a “managed account” fee, but no commissions. Tax accountants are important primarily to structure the plan properly, and advise you on the tax nuances, but they cannothold the investments unless they are licensed Registered Investment Advisors or brokers, which the CPA license does not provide, but some or many CPAs have acquired the other license as well.As with all retirement accounts (pensions and IRAs), your husband will be the beneficiary unless he agrees in writing to allow you to name someone else, like children. That would be an issue for estate planning. You should always have secondary, and possibly tertiary, beneficiaries. But I usually recommend that those be in trusts for each ofyour children “per stirpes”, which means upon their death it goes to their children, not their spouse. I do not recommend a single trust for all of your children combined, because often they have varying needs and goals. A qualified financial and/or estate planner can help you in this area, but I many CPAs who provide these services, as well as understanding the tax ramifications.2007-02-14 16:42, By: dlzallestaxes, IP: [4.175.9.75]

L2: 72T – SEPPGood morning Carol. I would like to address your question line by line.
I am 49 and expect a reduction in force this year from my current employer. I have $587,000 in pension and $150,000 in my 401K. I would like to draw from this amount to supplement my income as I will not be able to obtain a position with a equitable salary.
Can you take a “lump-sum distribution” of your $587k pension money? If so then you could combine that with your K-plan funds into one or more IRA accounts, and use one for the 72(t) distributions and the other for an emergency fund. For a SEPP Plan that will run for 10 years as your”s will, typically an emergency arises and you would be in a fix if you had to tap the SEPP to cover that emergency and that would constitute a “bust” of the plan. You need to set up some flexibility in your overall plan.
I am considering the SEPP IRA (72T) and have read a little, but have the following questions:
Get well educated on this subject before you make your first distribution.
Specifically what are my choices regarding a custodian? Is it an investment manager, a bank or a tax accountant?
The custodian holds the investments and can either be a brokerage firm either on-line or major wirehouse, mutual fund company, or a trust company that only holds such accounts. Like DLZ stated, the tax accountant (CPA) may be licensed as a Registered Rep or Registered Investment Advisor and can assist with the investment advice. However, I lilke to separate these functions. 72(t) is a tax issue; investment advice is separate. You”ll probably get better investment advice from someone who only focuses on building investment plans and helping you manage the money.
What kind of fees can I expect to establish a 72T? Are there ongoing fees?
This depends on the investment plan you have. For the amount of money you have indicated you have, I would be looking for a professional money management firm to use a separately managed account platform. For this arrangement you would pay a fee based on the assets under management, and it would cover all costs for trading, custodial services, etc. In effect you could have your very own “mutual fund” that is designed especially for you and your situation.
How does the custodian earn a commission?
The custodian fees are separate from the investment advisory fees, but will be included in the overall fee as described above. For the next question I think an earlier answer address this adequately.
Specifically who holds the account? Is it a bank, an investment firm?
Is the balance insured?
Bank accounts are insured up to $100K by FDIC. Investment accounts are insured by SIPC for much more and may vary by the custodian so you will need to ask this question to the investment firm your use. HOWEVER, none are insured against market loss … only against the institution going broke. This applies to banks, credit unions, and investment firms.
My husband is 50 and would be the beneficiary. What happens if both of us die? Is there a 3rd beneficiary?
Naming beneficiaries is one of the most important decisions you will make in dealing with retirement plans, IRA”s, Non-qualified annuities and insurance policies. Be prepared to make updates as situations change over time. Depending on whetheryou live ina “Community Property” state or not will determine who must approve you naming someone other than your spouse as “Primary Beneficiary.” Basically you can name anyone or any thing as beneficiary. However, when you go wild and name dogs and organizations as your beneficiary, then you create problems. Under normal circumstances you will name your spouse as your 100% Primary Beneficiary, and then name your children as Contingent Beneficiaries and you may split it in any manner you want, usually in equal shares. I have had a 49/49/2 split just because they didn”t really know where the third child was. Naming a trust as your beneficiary is tricky and requires the assistance of a very well qualified estate planning attorney. Before doing this you should get some really good legal advice in harmony with your tax advisor and investment advisor.
I hope this information will be useful to you and good luck.
Jim2007-02-15 06:51, By: Jim, IP: [70.184.2.72]

L2: 72T – SEPPA good detailed response from Jim.
I would only add that in April, 2006, the limit of FDIC protection on CDs in IRA accounts was increased from 100,000 to 250,000. In taxable accounts, the limit remains at 100,000.2007-02-15 12:36, By: Alan S., IP: [24.116.66.98]

L2: 72T – SEPPAlan:
Thank you very much for the update on the FDIC insurance level. I was not aware of that increase. Even with the increase it is really a moot point for Carol in her situation with the amount of assets she has, and that was the point I was trying to convey.
Thanks again.
Jim2007-02-15 12:51, By: Jim, IP: [70.184.2.72]

L2: 72T – SEPPThanks to all for very thorough answers! — Carol2007-02-15 12:56, By: Carol, IP: [198.23.5.10]