After the sepp plan ends
L1: After the sepp plan endsThanks to this site, I’m in my 5th year of an IRA 72T SEPP 5 year model, andeagerly anticipating it’s completion! DOB 01/23/1954, 1st quarterly distribution03/04/2010, will receive last quarterly distributionon 12/04/2014, 1st mod date 03/05/2015 per site calculator.
Info – Merrill Lynch has been great (filled out their form with my calculations learned studying this site, sent in, verified confirmation letter they sent back after keying in, keep copies of everything in 72T paper file, check distributions on-line.).1099s have always been correctly coded “2”, but for2013 they’ve issued 2 1099s: 1 coded “2”, 1 coded “7”. When I called they explained that since I turned 59 1/2 in the middle of 2013 theyused “7” for distributions after that. I’ve asked for a single corrected 1099 since my 5 years is not up. They sent the issue to their research dept. If I don’t get a corrected 1099 (they may not want to add this nuance to their software, and software changes are never fast), I’ll be happy to do the form on the taxsoftware I’ll use for 2013 taxes. So the lessonis towatch everything for the whole 5 years! I wouldhave noticedthis earlier if I had checked the wording on my ML statements next to the distribution amounts.
Question – After 03/05/2015, I can take out (or put in) whatever amounts I want, whenever I want, from my IRAs without the 10% penalty (with normal tax liabilities), right? I don’t have to worry about timing, consistency, or penalties until I’m 70 1/2?
I’m chopping at the bit after 4 years of being frugaland successful investing! I’m going to help the economy a bit.
And do you know of a site to help decide when to start taking pensions, soc. sec., etc. re taxes?
Thank you so much! I’ll be back when I’m 68.2014-02-13 19:20, By: Corvette817, IP: [22.214.171.124]
L2: After the sepp plan endsJust make sure that you have taken the equivalent of 5 annual payments over the 5 plan years. Once the plabn is complete, you can take any amount you want until you become subject to the minimum distribution rules.
>>And do you know of a site to help decide when to start taking pensions, soc. sec., etc. re taxes?
I don’t, but a lot depends on the type of pension, etc. I took my SS at 63. My wife (who will probably live a lot longer) will wait untilk age 70. I took my pension at age 63 (early retirement) as joint and 100%. She took her pension at age 65 life only. Fortunately, we are at a state where we still put money into savings – not out. Our only new peroblem is that we stated a new businesslast year that is doing well and will probably create some new tax issues, but that again is part of planning that wasn’t seen when we retired.
There are just a lot of individual variables that only point to where you are and how you want to live. 2014-02-13 19:42, By: Gfw, IP: [126.96.36.199]
L3: After the sepp plan endsWith respect to the two1099R forms,that is the correct treatment per the IRS 1099R Inst. Even though you are still in your SEPP, distributions after59.5 should be coded as normal distributions (Code 7). Just be sure the total Box 1 amounts add upexactly to your SEPP calculation. You doNOT need a5329 here, because none of your distributions have been coded with a 1. 2014-02-13 20:06, By: Alan S, IP: [188.8.131.52]
L4: After the sepp plan endsTo expand on Alan’s response, code 1 on a 1099-R denotes “early distribution, no known exception (usually in cases under 59 1/2)”, code 2 denotes “early distribution, exception applies (for payments under 59 1/2), and code 7 denotes “normal distribution, i.e. > 59 1/2”. ( Other codes have different reasons for the distributions.)
If you “bust” your plan, you only owe the 10% penalty on distributions up to age 59 1/2, so once you reach 59 1/2 any distributions are no longer “early distributions”, and therefore not subject to a 10% penalty. But if you bust the plan before the 5 years, then you owe the 10% penalty on all distributions before 59 1/2.
The inter-play between 5 years and 59 1/2 can be confusing. The 1099-R coding is straight forward in noting if the distributions were before or after age 59 1/2. Form 5329 is used to tell the IRS why you should not be subject to the 10% penalty on distributions taken before age 59 1/2.2014-02-13 20:18, By: dlzallestaxes, IP: [184.108.40.206]
L2: After the sepp plan endsThere are many tax practitioners and financial advisors who are qualified and competent to work with you in planning your distributions from retirement plans (pensions and IRAs), social security, etc. This is a complex process, but if done properly can save you a lot in taxes, while growing your income significantly. If you are married, there are strategies for maximizing SS benefits for you and your spouse.
In general, I usually recommend that clients defer SS benefits until 70, if possible, in order to get the 32% GUARANTEED increase in SS benefits over the age 66 benefits, or 70% higher than starting at age 62. I also have them take distributions from their retirement plans and IRAs to the limit taxable in the 15% tax bracket between 59 1/2 until 70, when they start SS benefits, and Required Minimum Distributions starting at 70 1/2. As part of this RETIREMENT PLANNING PROCESS, I discuss the feasibility of converting some IRAs to ROTH IRAs, paying the tax with non-retirement monies, and then the ROTH IRA will grow TAX-FREE for the rest of their life, their spouses life, and their children’s lives, which can be an enormous legacy. If you have a taxable estate over $ 5.4 million, this will result in a significant reduction of 45% in the effective income tax that you paid because it reduced your estate by these income taxes.
The cost of this planning will be saved many times over by reducing income (and estate) taxes.2014-02-13 19:58, By: dlzallestaxes, IP: [220.127.116.11]
L3: After the sepp plan endsThere have been many articles that you can google about the strategies for spousal SS benefits, and how to take distributions on your spouse’s earnings history, while deferring yours to age 70, or vice versa.
The “break-even” is about age 84, so your life expectancy (and your wife’s), and your respective ages and earnings histories must be taken into consideration, as well as your philosophy about how much or little you want to leave to your beneficiaries.2014-02-13 20:06, By: dlzallestaxes, IP: [18.104.22.168]
L3: After the sepp plan endsdlz, your second paragraph pretty much nails it on the head. There’s a lot of planning to be done from retirement until the RMDs begin that can be done.2014-02-14 15:59, By: brkr12002, IP: [22.214.171.124]