Additional Non-SEPP IRA

You are here:
< Back

L1: Additional Non-SEPP IRA
I am about to start taking SEPP distributions from 4 separate IRA rollover accounts that my wife and I have. After the first of next year, my wife will be getting a lump sum pension distribution that we will roll over into yet another IRA account. We wish to handle this account differently and withdraw amounts as needed for emergencies or special situations and do so without a SEPP provision. We are aware that we will be subject to the 10% penalty and the additional income taxes, but we are fine with that. The question is by doing so, do we put our other four accounts at risk for the 10% penalty as well. I understand that each account is treated separately, and therefore would reason the other 4 accounts are not at risk, but wanted to make sure.
Thank you.
2009-08-02 07:16, By: Kevin, IP: []

L2: Additional Non-SEPP IRALet’s start with your statement…I am about to start taking SEPP distributions from 4 separate IRA rollover accounts that my wife and I have
Your accounts and your wifes accounts cannot be combined into a single SEPP plan. You can use your accounts for your SEPPand she can use her accounts for her SEPP.
As long asshe keeps good documentation, she should have no problem keeping the rollover money separate from her SEPP plan.
2009-08-02 08:59, By: Gfw, IP: []

L3: Additional Non-SEPP IRABefore you do any rollover;
1. What is your wife’s date of birth? If she will be 55 or older by 12/31 of the year in which she retires AND SEPARATES FROM SERVICE, then it might not be necesary, or appropriate, to roll it over to an IRA or set up a SEPP 72-T.
2. Ask the employer and/or the plan administrator if there is any company stock in the pension plan. If so, ask them what the NUA Cost Basis is of those shares. NUA ( Net Unrealized Appreciation employer stock) has a special tax provision that can save a fortune in taxes, and give you complete flexibility on withdrawals. If you are eligible, talk to a qualified, experienced tax professional or financial planner who is familiar with the nuamces involved. I saved a client $ 100,000 in taxes when he retired from Merck.2009-08-02 16:24, By: dlzallestaxes, IP: []

L3: Additional Non-SEPP IRAThank you for your response. I should have been more specific – we are calculating four separate SEPP distributions from the four IRA accounts. We are documenting this with copies of each account’s statement balance prior to the distributions, a copy of each of the 4 calculations from the 72t calculator and a copy of the July AFR’s for our August distribution. Can you please tell me what else I should consider.
Again, thanks for your help.
2009-08-02 17:32, By: Kevin, IP: []

L4: Additional Non-SEPP IRAKevin,
I take your last post to mean that you will have a totally independent SEPP plan for each IRA account and the same applies for your spouse. That’s OK, it does provide some risk reduction, in that if you bust one of them, it will not affect the others. It will reduce the cost if you have to bust one of the plans. However, since you started at the same time, if you made any calculation errors, you might well have made that error on all of them. Let’s hope not.
You may have missed the portion of dlz’s post regarding the age 55 separation from service exception. If your wife meets the requirement AND if the plan will offer flexible distributions directly from the plan, there is no early withdrawal penalty, and you may not even need a SEPP from the IRAs at all. But once that lump sum is rolled to an IRA, this exception is lost and you would be exposed to the penalty as in your initial post. It is worth checking that out. If she is only allowed a lump sum distribution, then there is probably too much taxable income in a single year and she would then proceed with the IRA rollover.2009-08-02 17:54, By: Alan S., IP: []

L5: Additional Non-SEPP IRAGood Morning Alan,
That is correct – we do have 4 totally independent SEPPs and you confirmed what I assumed in regard to risk reduction.
I read and did respond to dlz (must have done something wrong though, as it seems it didn’t post) and it basically said that my wife retired 9 years ago and she will be given her pension distribution in lump sum on her 55th b-day, which is in March 2010. So, as you confirmed, our course of action is pretty much to roll it into an IRA.
Thanks for you time and repsonse,
Kevin2009-08-03 17:24, By: Kevin, IP: []

L6: Additional Non-SEPP IRARe my Q2, does her pension include any NUA employer stock ? If so, proced accordingly. ( See J K Lasser Your Income Tax for a 2-page narrative in “people English”.)2009-08-03 19:07, By: dlzallestaxes, IP: []

L7: Additional Non-SEPP IRANo it does not – just lump sum in cash. Looks like I somehowhosed up my earlier response to your post – it didn’t get through…
Thanks for the help

2009-08-03 21:03, By: Kevin, IP: []