Am I Eligible For A Sepp Plan ?
L1: Am I Eligible For A Sepp Plan ?I’m 49 years old. I like my job, but after 25 years I can’t deal with the schedule (hours) anymore.
It’s killing me slowly, both physically & mentally.
Do you have to prove a ‘hardship’ of some kind to employ a sepp 72(t) ?
I have 240k in a ‘taxable’ brokerage account, a house worth 130k minimumthat I owe 10k on, 125k in my 401k, 70k in company stock, a pension of $1,500.00 per month that will start in January 2017, and no other debt.
Could I employ the sepp to my 401-k if I was to quit now ?
Thanks in advance!
2011-04-25 10:54, By: Steve, IP: [22.214.171.124]
L2: Am I Eligible For A Sepp Plan ?Steve,
Have you read much about the SEPP/72(t) plans? I would suggest that you start by reading the “Planning Pointers” on this site to get a better understanding of what a SEPP is all about. After this you need to figure out a budget to see what you will need until your pension would start in 2017. You would need to roll the 401(k) into an IRA before you could setup a SEPP. What type of requirements are there with your 401(k)? Can you even get your money out of there before your turn 55? Look at the calculators on this site to see how much you would get from your IRA. Is the company stock in a tax deferred account? You might try doing a search on this forum for “NUA” (Net Unrealized Appreciation) in regards to your company stock. There are a lot of unknowns with the information that you provided.
Chuck2011-04-25 18:46, By: Chuck, IP: [126.96.36.199]
L3: Am I Eligible For A Sepp Plan ?Yes, your 125k would generate $487 a month using the amorization method based on 120% of the federal mid term rate currently at 2.94%.
My advice would be to keep reading this site, and forum for a while.2011-04-26 00:21, By: MrWillys, IP: [188.8.131.52]
L3: Am I Eligible For A Sepp Plan ?Thanks for the reply Chuck. I really appreciate it.
I’ll answer your questions as best I can.
1 “Have you read much about the SEPP/72(t)plans?”
I first heard of the SEPP/72(t) plans in Smart Money Magazine January 2007. A man sent a question asking… “My goal is to ‘depart the rat race’ & retire early, between the ages of 52 & 55. Is there a penalty-free way to tap into my 401-k & ROTH IRA at that point ?”
The woman explained that it would be fairly easy to do with the ROTH IRA.
A different woman named Twila Slesnick, answered the 401-k question. She is the author of ‘IRAs, 401(k)s & Other Retirement Plans: Taking Your Money Out’
I purchased that book about 6 months ago, when I started getting more serious about ‘getting out’
So I have done a fair amount of research.
2 “you need to figure out a budget to see what you will need until your pension would start in 2017”
I have done this. Assuming the world doesn’t end, I would be able to do this fairly easily. I have been investing since 1995 & have done well.
3 You would need to roll the 401(k) into an IRA before you could setup a SEPP.
This was explained by Twila in the Smart Money question section.
4 What type of requirements are there with your 401(k)? Can you even get your money out of there before your turn 55?
This is a tough one to answer. Who do I contact to find out about any requirements/restrictions ? My employer, the 401-k administrator, the IRS ?
I know this sounds strange. Why wouldn’t he have spoken to his employer about this yet ? The answer is that I don’t want everyone to know of my plan.
I’ll wait for your reply before addressing this further.
5 “Is the company stock in a tax deferred account?
No. It’s an ‘Employee Stock Purchase Plan’ The company holds from 1% up to a maximum of 15% after tax income per week & every quarter those funds are invested in company stock at a 15% discount. The only stipulation is that you have to hold the stock for 2 years.
One more thing. I have tried talking to professionals locally. But it seems they have very little, if any experience/knowledge of the SEPP 72(t) system.
I’m going to schedule more in the future.
I’ll also read the ‘Planning Pointers’ section.
Thanks in advance!
PS: I’d also like to thank Mr Willy for his input2011-04-26 03:44, By: Steve, IP: [184.108.40.206]
L4: Am I Eligible For A Sepp Plan ?The IRS has nothing to do with administration of your retirement plans, other than taxing them.
You must get the information about your plan from the plan administrator, or possibly your HR ( Human Resources) or personnel department.
Many intelligent employees start to plan their retirements several years before the actual date. Too many wait until a couple of months before, and are overwhelmed by all of the nuances. And the last thing you want to do is try to go over it all with your tax or financial advisor during tax season.2011-04-26 05:02, By: dlzallestaxes, IP: [220.127.116.11]
L4: Am I Eligible For A Sepp Plan ?Steve,
Like Dlz said, you need to find out from your HR department when and how you can get your money from your 401(k). Our 401(k) allowed retiring at 55. For anyone before that, they would need to wait up to 5 years before they would get their money. We could only take a lump sum distribution. (I worked at a small company and they did that to prevent a “run on the bank” scenario.) Those are a couple of questions that you need to get answered. When and how do you get your money? Do you have an employee manual? It might have your answers in there.
Chuck2011-04-26 13:07, By: Chuck, IP: [18.104.22.168]
L5: Am I Eligible For A Sepp Plan ?Here are things that I think youneed to figure out in order to make a decision on this issue:
How much do you need each month (NET) to survive for the next six years before getting a pension? Can you get by on the small gross monthly amount of the listed calculated payout that someone already posted (for the size of your 401k) in a SEPP plan? If not, how much of your other nest egg will be used up by the time you get to 2017, and start getting that pension.What do you do to pay for health insurance during the years before medicare? My brother currently pays $1,100 per month for INS coverage for he and his wifeonly, while unemployed and age 60. Will leaving now reduce that pension amount you are expecting in 2017? Most people can comfortably retire on about 65-80% of what they had been making at their job. What percent of your income will the SEPP cover?
My feeling is that you will use up a lot of your savings over the years before the pension kicks in, and maybe even after it but before you hit soc sec age, and then in your older years, you will not have much of a nest egg left.2011-04-26 14:20, By: Ken, IP: [22.214.171.124]
L6: Am I Eligible For A Sepp Plan ?Lots of good comments on this issue but will add a couple of my own.
Yes, you should check with your HR department about how your specific 401k plan works. The best way to do this, if you want your plan to remain secret for a while longer, is to request a copy of your 401k plan Summary Plan Document or SPD. If you request this, the employer is required by law to give you a copy. They are allowed to charge a small fee for copying but most don’t. Having your own copy will allow you to read and thoroughly understand all aspects of your 401k plan. I found that I was better at that than my employer’s HR department, so learned some things about our plan that the HR people did not know. That can be very valuable info indeed.
Second, do you have any arrangements made to cover the cost of health insurance once you retire? In many cases, people are shocked to discover just how expensive it is to get personal vs. company arranged health insurance. Depending on your health and family health history, it can be either very expensive or impossible to get. The plan that I have costs $1200 a month for my wife and me. Fortunately, I have a 50% contribution to that from my former employer as a retiree benefit. That makes it manageable in terms of cost. For a lot of people, health insurance costs are often the overlooked but deciding factor in whether or not they can afford to retire.
2011-04-26 18:09, By: Ed_B, IP: [126.96.36.199]
L7: Am I Eligible For A Sepp Plan ?Thanks for all the replies.
I don’t have time to respond to the suggestions/questions right now.
I’ll go over them after work tomorrow morning, and post them here.
Steve2011-04-27 00:29, By: Steve, IP: [188.8.131.52]
L8: Am I Eligible For A Sepp Plan ?I tried to contact the H.R. resources director this morning. I found out she’s off for personal reasons until May 16th.I will be on vacation the following week & will have a ‘sit down’ with her. So that’s the earliest I’ll be able to find out about the SEPP.
I’m going to use this time to check into some of the things you guy/gals suggested, health care etc.
When I have the information I need, I’ll start another thread.Sorry this post has to end, (at least temporarily) as I really appreciate all the info/knowledge you’ve passed on to me already.I know this isn’t a ‘financial planning’ forum, but I’ll also include more information on my individual investments, (Mostly Dividend Stocks) & what I hope to attain with them.
In the meantime, I have one more question. What are the ‘company’ factors, if any, that determine a persons eligibility or non eligibility pertaining to a SEPP ?
Steve2011-04-28 01:20, By: Steve, IP: [184.108.40.206]
L9: Am I Eligible For A Sepp Plan ?Steve,
Your company has nothing to do with your eligibility in setting up a SEPP. It is something that was defined by section 72(t) in the IRS code. Normally you can’t receive any of your retirement funds until you are 59.5 years old. The 72(t) is an exception that allows you to start receiving your retirement funds before 59.5 years old.
Chuck2011-04-28 01:39, By: Chuck, IP: [220.127.116.11]
L10: Am I Eligible For A Sepp Plan ?The 401k funds should be eligible for distribution within a very short period following the effective date of separation from service. I don’t think he was planning on getting an in service distribution. There could be some forfeited vesting of company matching contributions in the last couple years, but the remaining balance should be eligible for a direct rollover to an IRA.
The main problem is that the balance is so low as pointed out in an earlier post, and the IRA rollover will only generate a small annual 72t distribution. Therefore, the company stock and other assets will be needed to supplement the 72t distributions until such time as the pension kicks in.
Of course, there is no reason that part time employment cannot be used to supplement the retirement income and it may well be needed to prevent serious erosion of retirement assets prior to retirement age.
2011-04-28 01:48, By: Alan S., IP: [18.104.22.168]