72(t) with TIAA-CREF

L1: 72(t) with TIAA-CREFI have a conventional IRA with TIAA-CREF. Next year when I retire at age 55 I want to set up a 72(t) SEPP withdrawal from this IRA. I can do the required math and understand the rules. However, given the possible penalties, I would like someone to check my work and make sure I”ve done this correctly. TIAA-CREF has told me that their legal department forbids them from giving me any advice/help/assistance whatsoever.
Has anyone been down this road with TIAA-CREF before? Is there anyone in Washington state, USA who will do the math and certify the results?
Any help sincerely appreciated.2008-03-27 10:52, By: tiaatedd, IP: [198.104.64.238]

L2: 72(t) with TIAA-CREFHello, Tedd:
While I do live in WA State, I have not done any business with TIAA-CREF.
As to checking your work, you might want to consider the technique I used for this. I downloaded the SEPP brochure from Vanguard”s web site, went through the calcs in it for the amortization method, and arrived at a number for my annual SEPP payment. I then used the SEPP payment calculator on this web site to get the same number. That gave me the confidence I needed to proceed. There was a tiny difference of about $0.50 on an ammount over $30k, so I wrote that off to rounding differences. I have had no problems with the IRS over my calculations or my SEPP, so it should be OK.
One tripping hazard that I encountered, however, was that my custodian refused to issue a 1099-R with a “2” code in box 7. Because of this, I should have filed a form 5329 to claim the 72t exception. Since I did not do that for 2005, the 1st year of my SEPP, I had to file a form 5329 in 2006 as a stand-alone amended 2005 return. The IRS sent me a letter stating that this did not change my tax liability, so no additional tax was due. While I thought that this was the case, what I really wanted was to document that I was using a SEPP and that 2005 was its 1st year.I now file a form 5329 with my taxes each year and will continue to do so until my SEPP ends in March 2010. Since I will turn 59.5 in Feb. 2009, that will probably end the need to file form 5329 but it is unlikely to be a problem if I have an extra one in there. I will wait and see how the custodian codes my post 59.5 withdrawals.
Ed2008-03-27 11:16, By: Ed_B, IP: [67.170.159.37]

L2: 72(t) with TIAA-CREFHello Ed,
Thank you for sharing your experience. It made a lot of sense to me. I”ll take a look at Vanguard”s SEPP info andrun my calculations on a few different calculators, then hopefully proceed with confidence.
After reading your second paragraph, I was wondering what, in hindsight, you would have done differently? Would the only difference be thatyou”d file a form 5329 in your first SEPP year? Would that have enabled your custodian to issue a 1099-R with a 2 in box 7? Or would that have only removed the need to file an amended return?
Again, thanks for your response.
tedd
2008-03-28 08:54, By: tiaatedd, IP: [198.104.64.238]

L2: 72(t) with TIAA-CREFTedd:
TIAA-CREF is really good about collecting your contributions, but they are a pain when it comes to distributions, especially if you want to make an IRA Rollover to another investment strategy. The part that”s invested in separate accounts is somewhat easier to move. But the part that”s invested in the fixed annuity part is the problem. The only way to take money out of this section is systematic distributions over a 10-year period. Even if you wanted to move from the fixed annuity part to the investment accounts (separate accounts) within the contract, you have to do it over the same 10-year period.
Before you get too heavily set up for a SEPP Plan, check with your TIAA-CREF rep to see what you will be able to do given your individual situation with their contract.
Lots of luck!
Jim2008-03-28 09:58, By: Jim, IP: [24.252.195.14]

L2: 72(t) with TIAA-CREFWhat about direct distribution options from the company you plan to retire from at 55? If you have certain plan assets there, they may be able to offer systematic payments with no penalty under the separation at 55 exception. Then you may be able to avoid the pitfalls inherent in a 72t plan.2008-03-28 13:49, By: Alan S., IP: [24.116.165.60]

L2: 72(t) with TIAA-CREFHi, Ted:
You”re most welcome to my story. Glad to hear that it helped. 🙂
I have contacted Vanguard regarding this 1099-R coding issue but they refuse to even consider coding it for a “2” (pre-59.5, known exception). For some reason, they believe that by doing so they will be somehow guaranteeing that I have set up the SEPP properly. Most custodians take this approach today. A few, such as Charles Schwab, do not. If Schwab can do it, so can others, IMHO. In any case, Vanguard will only code the 1099-R as a “1” (pre-59.5, no known exception). Because of this, I need to file the form 5329 to claim the 72t exception to the 10% early withdrawal penalty tax. I am curious as to why the IRS will take my word for this while at the same time,most custodians seem to feel as if the IRS will not take theirs.I bet that Vanguard is really confused about why I went to all the trouble to fill out their 7 page SEPP application form and why they are sending me substantially equal periodic payments. 😉
I also wrote to the IRS about this coding issue and their reply was to “simply call your custodian and have them issue an accurate 1099-R”. Gee. Why didn”t I think of that? They make it sound so simple. The problem is, of course, that most custodians these days will not do this and the IRS seems blissfully unaware of this fact. They must be wondering why all these form 5329s are coming in. :-/
It will be interesting to see what Vanguard does in 2009. I will turn 59.5 in February of that year (prior to my 1st quarterly distribution in March), so I am wondering if they will code the 1099-R as a “7” (post 59.5 “normal” distribution). Since I did not start my SEPP until age 55.5, it will run until age 60.5 for me. This is not a problem, as my SEPP distributions provide sufficient living expenses for my simple life-style and I probably will not change the distribution amount by very much, even when the SEPP ends and I am permitted to do so without penalty. No wild and crazy spending orgy for this kid! 😉
In hindsight, I would have filed the form 5329 for the first year of my SEPP so that no amended return would have been required. My reasoning for filing the amended return was so that there would be additional “paper trail” support for the existance of my SEPP. I wanted to be VERY sure that the IRS knew I had a SEPP and when it was started. That way, when it ends in 2010, there should be no questions as to whether the 5-year / age 59.5 SEPP conditions have been completed.
Ed2008-03-30 09:54, By: Ed_B, IP: [67.170.159.37]

L2: 72(t) with TIAA-CREFEd,
You”re right. It will be interesting, since it is nearly impossible to determine which rationale a particular custodian has adopted with respect to 72t plans. The choices appear to be:
1) Code 1 if they recognize that you have a 72t and know the start date. If they know that, they also know that your modification date is beyond age 59.5. But since they are not taking the position of underwriting your calculations or execution for compliance prior to 59.5, they won”t know post 59.5 either, so the safe coding would still remain a “1” – thus another 5329 for you.
OR
2) Code 7 if they have taken the approach of not even recognizing that you have a 72t in force. If they have been using complete non recognition rather than partial recognition, at 59.5 they would use the 7 code just like any other taxpayer or complying 72t taxpayer. If this happens you do not have to file a 5329 because “7” is what is supposed to be used if taxpayer complies with 72t requirements.
Filing the 5329 is simple, so this issue is more a matter of technical curiosity than anything else……:)
2008-03-30 11:22, By: Alan S., IP: [24.116.165.60]

L2: 72(t) with TIAA-CREFHello, Alan:
Well, sir, of the two possibilities that you mention, I would be willing to bet a dime or so on door #2. That would be consistent with their “we know nothing, nothing!” approach to client SEPP programs. Funny how they seemed VERY interested in all this BEFORE I signed up. Oh, well. My vote for #2 is for consistency”s sake. Either way they want to go with this works for me. I agree that it will be interesting to see which way they decide to flop on this issue, though.
Vanguard has been fairly consistent in their dealings with me. I currently have an account review in progress due to market conditions reducing my Admiral class shares below their $100k threshhold value. They want to revert these to “investor class” shares, which pay a bit more in fees. I sent thema copy of an email from a Vanguard rep who told me that market fluctuations would not cause the admiral class shares to be reclassified to investor class shares. Since I haven”t sold any shares in this fund, the current lower value MUST be due to market fluctuations. We”ll see.
There are many reasons for liking Vanguard and having the bulk of my money invested there. There are also a few quirks from time to time, some of which seem rather humorous… or eccentric.
The 5329 is pretty much a non-issue for me these days. Using Tax Cut software takes care of it in fine fashion and I assume that Turbo Tax does the same. My initial problem with not filing the 2005 5329 was that we did our taxes by hand then and we did not know that we needed to file this form. The directions were… shall we say… somewhat less than a model of clarity.
I would imagine that the IRS would like to see an end to as many 5329s as possible in the name of making their review process more efficient. In that respect, I am surprised that they have not resolved this tax law interpretation difference that now exists between them and most custodians over how to properly code a form 1099-R. I imagine that they will one day… AFTER my SEPP is done and I no longer need to file a 5329, of course.
Ed2008-04-01 15:16, By: Ed_B, IP: [67.170.159.37]