a few questions
L1: a few questions
In opening, I’d like to say that this has been a very useful site for me and I’m sure many others. Many thanks! I am a 55 year old male born on 5/11/1956. I have been unemployed due to the economic situation for quite some time. My unemployment benefits
will be exhausted shortly and as such, I am planning on starting a SEPP with a first distribution this month. I purchased the Practical Guide to Substantially Equal Periodic Payments’ from this site and have read it through thoroughly once now with additional
attention to what I thought were the more important sections for my situation. In general, I have been considering this option for some time now as my employment situation has not improved. I think I have a relatively good grasp on the material in general
but have a few questions on a couple of things. Here are my current statistics regarding the SEPP plan I am considering.
Vanguard SEPP account balance as of 09/30/11: $521,561.39 (although my 12/31/10 statement balance was $554,807.05. A trustee-to-trustee transfer to an HSA account for $4050.00 was made in
June ’11). I have consolidated remaining funds into an account for the SEPP which is reflected in the 09/30/11 statement from Vanguard.
From the appropriate tables my life expectancy figure is 29.6 years.
The maximum interest rate for an initial distribution in October 2011 is
2.28% from August 2011 tables.
From my calculations and yours I would be able to distribute a maximum amount of
$24,422.65 annually or
I was planning on starting this SEPP a bit later, but applicable plan interest rates have been dropping to a point where an insufficient distribution amount will result. So I feel I need to move now.
Now let’s address my questions.
Do I need to take a full annual distribution for these last three months in October 2011? Or, as I believe I read in the Guide’, I can consider 2011 a stub year’ and take a single distribution of $6,105.22 in October 2011 or any combination starting in
October through 12/31/2011 that equals that amount? What are the IRS guidelines that address a stub year’? Because, I couldn’t find any reference to it on their site.
Which account balance figures from Vanguard should I use that not only will result in the largest distribution but be the safest from a scrutiny standpoint?
What are the different values in the interest tables for semi-annual, quarterly, and monthly used for? Is the annual’ figure of 2.28% percent from the tables the appropriate one for a monthly distribution?
Since the interest rate in the maximum rate allowable’, can a person use a slightly smaller number for whatever reason (i.e. playing it safe, etc.)?
Thanks for your input on this. Feel free to mention anything else that may come to mind.
2011-10-09 22:50, By: Mark, IP: [188.8.131.52]
L2: a few questions
1) Correct, you can do that and take 3/12 (25%) of the annual distribution amount.
2) The IRS puts out limited information about 72t plans. RR 2002-62 is the most info they publish in one place. Many other issues evolved as a result of tax court decisions or letter rulings. This site as more information posted
than any other single place I have found.
3) Your account balance cannot be older than the latest of either your HSA transfer, when the last account was consolidated with Vanguard or when you did your last distribution or transfer. After that latest date you can use
the highest daily account balance you can document with an on line print out or a Vanguard statement, which is probably produced only monthly. Since the market has been dropping, the farther back you go the larger your account balance is likely to be. But
it sounds like everything was not consolidated with Vanguard until more recently than the 6/30 date which would probably produce your highest account balance.
4) Ignore the different calculation amounts based on the frequency of your distributions. The IRS probably will not bust a plan for using one of them, but use just the interest rate published on this site to be safe. You can
also change your distribution pattern from one year to the next, eg monthly to semi annual.
5) You can use a lower interest rate if you wish, but rates are so low now that this will reduce your possible payout even more. If you do not need to use your entire balance, we recommend transferring excess amount to a non
SEPP IRA account before you start your plan, then use the highest rate possible to get the highest distribution you can per dollar of account balance. The non SEPP IRA can then be used as an emergency funding source and protect your SEPP plan. You may not
have time to do any more transfers now and still get your first distribution out in October.
2011-10-10 02:53, By: Alan S., IP: [184.108.40.206]
L3: a few questions
Thanks for your response! You guys are the best. The last accountm consolidation or other account movement from what is now the ‘SEPP’ account was on 09/23/11. I have a end of 3rd qtr. statement balances on 09/30/2011 that reflect the last changes made.
So… sounds like that’s the figure I should be working with. Do you concur?
2011-10-10 09:33, By: Mark, IP: [220.127.116.11]
L4: a few questions
The 09/30 statement balance would be the best one to use.
Goood luck and save all of your documentation just in case
2011-10-10 09:35, By: Gfw, IP: [18.104.22.168]