amortization question and referral question
L1: amortization question and referral question
I want to start a SEPP next month. I feel pretty confident about most of the details but I’ve seen some conflicting info about how amortization is done. Most posts and the calculator seem to indicate that whether you take the distribution monthly or all at once is irrelevant, as long as the proper amount for the year is distributed. But I’ve seen at least one post that indicates that a monthly distribution will change the amortization calculation. That makes sense . . . but which is correct? Does the total distribution for the year depend on whether it is monthly or not?
I am looking for a professional in the Dallas, TX area who can do a sanity check on my SEPP calculations. Is it possible to get a referral from this site (which is far and away the most reputable I’ve found)? I can’t see a way to get private messages from other posters, and they probably cannot see my e-mail address. If someone had an idea about how to handle this, please let me know. I am interested in a referral because the local tax expert/FA I contacted was unwilling to work with an SEPP (maybe because he was unfamiliar with it). I get the feeling that I could spend a lot of time searching for the right person.
I’m not asking specific questions about the SEPP I am planning, but I don’t want my post deleted, so here are the details:
SEPP IRA account amount $1,100,000 (I know I need to be exact in the calculations).
DOB = 8/6/67 (so I’m looking at a 9-year window)
first distribution 7/11/2018 (I would use 3.44%)
2018-06-27 02:02, By: lawson, IP: [2602:304:b200:ac90:75bb:59c4:bf80:9bb8]
L2: amortization question and referral question
You can do your own calculations. At the top right of the screen, click on “72t/72q Plans”. Then on the left, click on “SEPP Calculations”.
Enter the information in the various fields.
Basically, the Amortization Method will result in an ANNUAL distribution of $ 48,180.57. You have to decide how much you want or need each year for the next 8 1/2 years until you are 59 1/2 (not 9 years). You also have to decide if you want to take $ 48,180.57 in 2018 or $ 24,090.29 (i.e. 6/12 of the annual amount), based upon your 2018 needs, and 2018 tax picture.
You should also consider setting aside some of your IRA (say $ 50,000 or $ 100,000) into a separate IRA that would not be part of your SEPP. This could be used in case of an emergency need at some time before 59 1/2, and minimize the chance of busting your plan at any time before 59 1/2. Of course this will reduce your annual distributions by 9% to $43,800.52, or $ 4,380.05 less per year ( $ 365 per month).
Alternatively, if your tax situation is not impacted too negatively, you could take the full $48,180.57 in 2018, and that extra $ 24,090.29 could be used at any time as emergency money, tax-free in the future (because you paid the tax in 2018).
These are just some ideas to consider in setting up your PLAN.
2018-06-27 05:25, By: dlzallestaxes, IP: [220.127.116.11]
L3: amortization question and referral question
Thank you for the help! I’ve been using the 72t calculator on this site for about a year, but had NEVER selected the “Use Uniform Table” widget, so my distribution amounts were always wrong (I did not have any tables selected; I’m not sure what the calculator uses by default). That is why I want to go over my calculations with a professional!
Also, thanks for the good advice about the emergency/backup IRA account. My SEPP IRA is an account I create by splitting my main IRA account, so I’ve got a backup IRA for emergencies or in case the SEPP busts or runs out or something.
1) Is the annual distribution based on a calendar year (as opposed to being relative to the date of the first distribution)?
2) Assuming the distribution is based on calendar year . . . Are these valid distribution methods: a) full annual amount taken in January; b) full annual amount taken in December; c) annual amount divided evenly across 12 months and taken monthly?
3) For the “final” distribution year, say I reach 59 1/2 in the middle of the year and I’ve been taking monthly distributions. Do I still need to take the full distribution for that year, or can I stop the SEPP because I reached the age of 59 1/2? What if I had taken no distributions yet for that calendar year and I reach 59 1/2? Could I get away with not taking any money out that year?
Thank you again for the help.
2018-06-27 14:17, By: lawson, IP: [2602:304:b200:ac90:75bb:59c4:bf80:9bb8]
L4: amortization question and referral question
1. You have the option in the 1st calendar year of taking either the full ANNUAL distribution in any month of the year, or taking the proportion based upon the remaining months in the year.
2. a, b, and c are all valid. You can also take distributions quarterly, semi-annually, or whenever you want to (such as to pay real estate taxes, insurance premiums, vacations, etc.), just so long as the total for the year is the annual requirement.
3. Once you reach 59 1/2, your SEPP plan automatically ends (unless someone starts their plan after 54 1/2 because SEPP plans must continue to the later of 60 months or 59 1/2 in order to not be “busted”), by law. Any amount that you withdraw after that is subject only to income taxes. These distributions are not subject to the 10% penalty because early distributions are only before 59 1/2.
The other aspect of # 3 depends upon whether or not you have taken the equivalent of 5 annual distributions for people 54 1/2 or older. In your case, you will have taken 8 or 9, so in the year you become 59 1/2, you can take 0, prorated, or 100% of your annual distribution, depending upon your needs and tax situation.
At that time, you might want to consider a ROTH CONVERSION program between 59 1/2 and 70 1/2, and deferring SS benefits until 70, if you can stay in the 12% (or whatever) tax bracket, and use your non-retirement funds, or home equity loans, until 70 1/2. This is called “PLANNING DURING RETIREMENT”.
2018-06-27 16:29, By: dlzallestaxes, IP: [18.104.22.168]
L5: amortization question and referral question
Thank you, dlzallestaxes. That answers my questions.
2018-06-30 02:36, By: lawson, IP: [2602:304:b200:ac90:e092:aec6:e8d1:6aa3]
L6: amortization question and referral question
There is a 155 page book on SEPP plans, available for free download:
A Practical Guide To Substantially Equal Periodic Payments And Internal Revenue Code 72(t) By William J. Stecker, CPA. Fourth Edition 2004
Do a Google search on the paragraph above as this web site does not allow posting of URL’s. The Internet has a few versions available, but I think the “fourth edition” is the most recent.
This is a fantastic book and goes into everything, including what you will be asked for in an audit. With the large amount of your SEPP plan (over $1 million), you should also look at “account fracturing” before starting.
2018-06-30 03:06, By: sm69, IP: [22.214.171.124]
L7: amortization question and referral question
Excellent advice. I found it. Thank you!
2018-06-30 03:32, By: lawson, IP: [2602:304:b200:ac90:e092:aec6:e8d1:6aa3]
L8: amortization question and referral question
Bill Stecker’s article can be found on line at retireearlyhomepage.com/rpt003e4.pdf
2018-07-01 01:54, By: Alan S, IP: [126.96.36.199]