After tax money in SEPP

L1: After tax money in SEPPWe are plnning to roll my wifes 401K into a SEPP IRA when we retire next year. Is the after tax contribution money that gets rolled over treated any differently for the SEPP calculation?2007-10-17 13:24, By: Desperado, IP: [75.167.8.239]
L2: After tax money in SEPPAfter tax money MAY be rolled over into the IRA, but that usually doesn”t make good sense, and especially if you are planning to start a 72(t) plan. Instead, let the K-plan administrator send the after-tax contribution money to you in a separate check which you can deposit into any money market or other investment account for your use as living expenses. Depending on the amount, this could take you for some time and may negate the need to even do a 72(t) plan. Of course the earnings on this after-tax money will qualify for the IRA rollover and will go along with the pre-tax contribution / matching dollars.
Jim2007-10-17 13:33, By: Jim, IP: [24.252.195.14]

L2: After tax money in SEPPJim,
I like that option!
I”ll contact the 401K custodian (Fidelity) and see what needs to happen tomake the split and only roll over the pretax money into the IRA.2007-10-17 14:31, By: Desperado, IP: [75.167.8.239]

L2: After tax money in SEPPIf your wife will be 55 years old, or older, in 2008, then you probably should not roll any of her 401-k over to an IRA, especially if she is under 59 1/2. I suggest you read one of the hundreds or thousands of posting on this website that explain that 401-Ks have favorable different rules from IRAs, and why your first choice should normally be to just keep the 401-K, at least until reaching 59 1/2.2007-10-17 15:24, By: dlzallestaxes, IP: [141.151.24.60]

L2: After tax money in SEPPShe will only be 44 so that is not an option. I plan to take advantage this for my 401K since I will be 55 next year.
Thanks for the help.2007-10-17 17:30, By: Desperado, IP: [75.167.8.239]

L2: After tax money in SEPPDesperado,
Your initial post referenced your wife”s after tax contributions relative to a SEPP plan, but in your final post you seem to indicate that it will be your account that will be used for a SEPP. That”s all fine, as long as you realize that a SEPP plan is not joint but tied to each spouse”s IRA account. Unless you need to tap her account balance, it would be best to proceed as follows:
1) If you meet the age 55 separation from service exception and your plan offers periodic distributions, you don”t need a SEPP because the penalty will already be waived for distributions directly from the plan for the company you separated from at 55 or later.
2) If the plan will only offer a lump sum, then you would probably roll it over to an IRA and start a SEPP that need only last 5 years. But before you do that, check for any highly appreciated employer stock in your 401k that would qualify for LT cap gain rates. This option is lost once the shares reach an IRA or are sold in the plan itself.
3) Your wife”s plan could provide an emergency fund to prevent you from busting your SEPP and incurring penalties down the road. However, if regular use of her balance is needed, then you might need a second and independent SEPP, one for each of you. If you only need part of her balance, her IRA could be partitioned befor starting her SEPP and only the balance needed used with the other IRA account created by the partition being held aside for emergency purposes. That outside account could save you from busting either or both plans, but if she starts a plan now, it must last 15 years. 2007-10-17 19:22, By: Alan S., IP: [24.116.165.60]

L2: After tax money in SEPPDesperado:
What started out as a semingly simple question about what happens to the after-tax contributions appears to have turned into a rather complex planning situation. You appear to have several elements to a complex puzzle that needs some serious planning to maximize your benefits from the assets you and your wife have accumulated.
My suggestion is for you to find a knowledgeable financial planner to help you construct a sound plan to take into account investment options and tax implications for you and your wife. If you do not have a financial advisor, and it sounds like you probably do not, then begin by looking in the yellow pages under the “Financial Planner” heading. Look for one with the tag line “Investment Advisory Services Through ”XYZ Financial Group, Inc, a Registered Investment Advisor.” The key is the term “Registered Investment Advisor.”Today too many insurance agents are illegally holding themselves out as “Financial Planners” or “Retirement Planning Advisors”and they are steering people to Equity Index Annuities / Fixed Index Annuities which are totally inappropriate products for your situation.
By the way, when you process the IRA rollover from the K-plan, the administrator usually defaults to sending you a check for the after-tax contributions. However, since you now have the option to include that in the rollover, you will need to specify that they send the check to you or your wife as the case may be.
Good luck.
Jim2007-10-18 07:33, By: Jim, IP: [24.252.195.14]

L2: After tax money in SEPPOne last question – hopefully.
Would the after tax money received by my wife from her 401K when she retires be subject to a 10% penalty for early withdrawal since she is only 44?
If the answer is yes then it sounds like it would be better to roll the entire 401K into a SEPP IRA, including the after tax contribution funds.
I will be keeping my 401K and taking quarterly partial withdrawals as needed, since I will be 55 in the year that I retire.2007-10-18 14:47, By: Desperado, IP: [75.167.8.239]