72t Sepp distribution timing
L1: 72t Sepp distribution timingI have an existing SEPP plan that started November 2009 (birth date May 1954) that I have been withdrawing on an annual basis every year in November (this year makes 4 years now). My first distribution was made in November 2009. My final distribution will be just after I turn 59 and a half. I am trying to setup a budget for cash flow for the final year and it would work out better to have an option of withdrawing prior to my normal November date if needed. I am only working part time during that last distribution year and would like to have a plan B. I think is unlikely that I will need the cash early but if needed I want to be prepared. Everything has worked perfectly as planned as I have my IRA custodian handle the distributions (I alway double check as well). As long as my one time yearly withdrawal amount is correct does the IRS care one way or the other if I take it earlier in the year? I know when I fill out my taxes their is no mention of the date taken – only the amount.2012-09-10 14:29, By: ladnga, IP: [188.8.131.52]
L2: 72t Sepp distribution timingYou are correct, and wrong.
You can take your distributions at any time, and in any frequency, in any year.
BUT, your SEPP 72-T plan does not end until 5 years/60 months after your FIRST DISTRIBUTION. Since you started Nov 2009, your plan does not terminate until Nov 2014 !!! You made the same mis-interpretation as many people. The SEPP 72-T does not end after the 5th annual payment, and you must be 59 1/2 as well (which you will be in Nov 2013, which doesn’t matter in your case).2012-09-10 14:49, By: dlzallestaxes, IP: [184.108.40.206]
L3: 72t Sepp distribution timingThanks for your response!
That was my mistake in describing the plan. Since my last distribution is November 2013 but my actual plan stops at the end of the 60 months (in November of 2014) before I can touch that IRA again. In fact to remind myself – I have named the IRA account used with the comment “do not touch till December of 2014”.
Again, thanks for your response2012-09-10 15:13, By: ladnga, IP: [220.127.116.11]
L4: 72t Sepp distribution timingOf course, you can take your 2013 distribution at anytime in 2013 if you need it prior to November.
By the way, what was the exact date of your 2009 distribution(distribution date, not received date)and the exact date you reach 59.5?
2012-09-10 17:15, By: Alan S, IP: [18.104.22.168]
L5: 72t Sepp distribution timingThanks for all the input.
in answer to your question about the exact date of distribution in 2009 is November 1 of 2009. As to the date I become 59.5 – that is November 10 2013.
I split my funds into several IRA’s so my plan has been that if If I need funds in 2014 I could get them from my previously un-touched IRA since I would be passed the 59.5 mark. I certainly want to choose the safer source of funds (IRS wise).2012-09-11 03:25, By: ladnga, IP: [22.214.171.124]
L4: 72t Sepp distribution timingYou will have to do some advance tax planning for 2014 and 2015,etc. because you will have -0- income in 2014 if you took your 5th annual payment in Nov 2013. You could take your full annual distribution in Nov 2014, or monthly for 11 months ( Jan-Nov), or wait until Dec 2014 and take whatever you want (which should be a code 7 for a normal distribution after SEPP 72-T and after age 59 1/2), or wait until Jan 2014 to start taking whatever you want, whenever you want..2012-09-10 18:29, By: dlzallestaxes, IP: [126.96.36.199]
L5: 72t Sepp distribution timingIn a 5 year plan, which it sounds like this is, and the 5th annual distribution is is in Nov. 2013, then no more should be taken until after the 60th month. 2012-09-10 19:28, By: Gfw, IP: [188.8.131.52]
L6: 72t Sepp distribution timingMy last response should have said Jan 2015, not Jan 2014.
Re gfw response, I think that it depends what his cash needs are in 2014. If he needs money in 2014, even after taking his last annual distribution in Nov 2013, couldn’t he take a full annual distribution in 2014, or 11/12 of it by Nov 2014, or take any amount in Dec 2014 based upon tax planning for 2014.?2012-09-10 19:40, By: dlzallestaxes, IP: [184.108.40.206]
L7: 72t Sepp distribution timingOnce the 5 annual distributions are made, nothing more until 1 day after the 5 year period ends. Once the five year period ends, he can do anything he wants as the plan ends.
ladnga…if you haven’t already done so, use our calculator athttp://72t.net/72t/Calculator/First/Modification/Date
2012-09-10 20:06, By: Gfw, IP: [220.127.116.11]
L8: 72t Sepp distribution timingI’m confused.
Are you saying that he cannot take any distribution in 2014 until after the 5-year/60 month anniversary, or are you saying that he does not have to take any during 2014 before his Nov anniversary, but he can if he wants to take one or more distributions in 2014 ? ( If the latter, then are his only 2014 options full or 11/12 before the 2014 anniversary, or anything in Dec 2014 ?)2012-09-10 20:22, By: dlzallestaxes, IP: [18.104.22.168]
L7: 72t Sepp distribution timingI think he probably could, but this question all depends on how you interpret Arnold vrs Commissioner. gfw interprets it that you can’t take any more than 60 months of payments in a 5 year plan. For this poster, it would mean he could not take anything in 2014 until after the plan ended.
In Arnold’s casehe obviously busted the plan by taking an additional non SEPP distribution in the 5th calendar year, sohe did not even reachhis 6th calendar year.He did not take anything in the 6th calendar year, so it is not clear that the IRS would have busted the plan if he had not already busted it in the 5 th year. All 5 year plans actually contain parts of 6 calendar years and the question comes into play when the taxpayer has already taken out 60 months worth in the first 5 calendar years triggered by a full annual distribution in CY 1, as was the case here. The IRS did make a comment in Arnold about what the taxpayer could not do, but I think that comment was limited to the Arnold case, not meant to apply to those who reach their 6th CY with a valid plan in place and 60 months already distributed. Why do I think that? Because lots of people have taken a 6th year of distributions in a 5 year plan and to my knowledge none of them has reported here that the IRS questioned their final distribution. I am not aware of any other PLRs on this specific situation.
Therefore, the question here is whether he (or anyone)has the same options for the final (6th)calendar year of a plan that ends 5 years after the first distribution as he would for the final year ofa plan that ends at 59.5.
I don’t think the IRS hasprovided any more conclusive guidance on this thanthe Arnold case, and Arnold leaves some questionsunanswered.
The following is copied directly from the tax court ruling:
Under section 72(t)(4), petitioner was required to wait until sometime in December 1994 before he could receive additional distributions that would avoid modifying the prior series of substantially equal periodic payments. He did not meet the required waiting period. Instead, petitioner received his distribution in November 1993, prior to the close of the 5-year period as provided in section 72(t)(4).
I think the above quote only indicates that Arnold could not take an additional payment that would modify his plan. He took it early in 1993 and the plan was busted. Instead, had he waited until 1994 (the 6th CY) and took out his 6th annual payment exactly, it is not at all clear that the tax court would have concluded that this also would have modified his plan.2012-09-10 20:32, By: Alan S, IP: [22.214.171.124]
L8: 72t Sepp distribution timingIf he doesn’t need money during 2014, then it obviously makes sense to wait until Dec 2014, or Jan 2015.2012-09-10 20:52, By: dlzallestaxes, IP: [126.96.36.199]
L8: 72t Sepp distribution timingAlan…
I agree that Arnold v Comm left a lot of unanswered questions. In reading the ruling, it almost appers that the IRS (and the court) used not a calendar year, but a fiscal year to determine the beginning and ending dates.
Most plans never get audited or there would probably be a lot more court cases to rely upon.
The real question… is it worh the risk if you become the person that is being audited?2012-09-10 21:02, By: Gfw, IP: [188.8.131.52]
L9: 72t Sepp distribution timinggfw, I agree that the risk is totally eliminated if you take nothing, and that is preferable. However, if you have a serious need for the funds in the 6th CY, IRS inactivity indicates that the added risk is negligiblein taking what would otherwise be a valid 72t distribution had the plan not been a 5 year plan, ie. taking the full annual or pro rating by the month. Taking out an amount before mod date other than the 3 usual choices of course would bust the plan.
Perhaps in this case, 59.5 is attainedAFTER the 5 year period has been reached. OP has not responded to that question. I assume that would eliminate the 5 year plan concerns even if 59.5 was attained in the same CY as the 5 year anniversary?
2012-09-10 23:50, By: Alan S, IP: [184.108.40.206]
L10: 72t Sepp distribution timingI responded above to the earlier question about exact dates in the thread but I thought I would repeat so the response would be at the bottom of the thread.
in answer to your question about the exact date of distribution in 2009 was November 1 of 2009. As to the date I become 59.5 – that will be November 10 2013.
The calculated modification date from this web site is November 2, 2014. One day after my 60 months are up. So I’m hearing that the safe thing to do is not take a distribution for 2014 (unless it is after 11/2/14)?
I split my funds into several IRA’s so my plan has been that if If I need funds in 2014 I could get them from my previously un-touched IRA since I would be passed the 59.5 mark. I certainly want to choose the safer source of funds (IRS wise).2012-09-11 19:04, By: ladnga, IP: [220.127.116.11]
L11: 72t Sepp distribution timingVery good planning, something that doesn’t always happen.
Good luck in your retirement – I have been there for 4 years and never looked back2012-09-11 19:20, By: Gfw, IP: [18.104.22.168]
L12: 72t Sepp distribution timingHaving 1 or more separate IRAs was great planning. You can take distributions from any non-SEPP 72-T after you reach 59 1/2 on 11/10/13, but I would wait until 2014 to avoid confusing IRS with 2 1099-R’s with different codes, especially if from the same financial institution.2012-09-11 19:49, By: dlzallestaxes, IP: [22.214.171.124]
L13: 72t Sepp distribution timingThanks.
I would agree that it would avoid possible confusion as all of my IRA’s (except one small Beni-IRA) are with the same low cost firm.
If I really hold down my expenses in 2013 I can do fine till then although my plan has always been to tap the un-touched IRA sometime in the 2nd half of 2014. I will certainly need to give additional thought to that plan.2012-09-11 21:24, By: ladnga, IP: [126.96.36.199]
L14: 72t Sepp distribution timingAlthough with your flexibility, the former question is moot, your posted dates do confirm that you have a 5 year plan.
If you need money in 2014 before the modification date of your plan, why not consider the inherited IRA? Distributions from an inherited IRA are never subject to penalty, and you have to take annual RMDs anyway if you are a non spouse beneficiary. You could just take out a larger amount to meet your needs.
Then you would not touch the IRA used for your SEPP until 2015. Your last distribution under your plan would be the 2013 distribution whenever in 2013 you choose to take it.
2012-09-11 21:54, By: Alan S, IP: [188.8.131.52]