Amount needed to Allocate to SEPP
L1: Amount needed to Allocate to SEPPFirst let me thank you all for the information you gave me a while ago on questions I had concerning SEPP distribution.
I have a question concerning the amount of fundsI need to allocate to the SEPP account. When I used the reverse calculator to determine the amount needed and usingthe amortization method, the amount that is calucated is $222,585.48 to allow me to withdraw$12,ooo/year. Question. If I am withdrawing $12,000/year for 5 years, the total amount for 5 years withdrawal will only be $60,000. Why do I need to allocate the $222,585.48?Willlose all of this after 5 yearsof withdrawals?
Thanksin advance foryour reply.2009-09-09 19:59, By: Doc, IP: [126.96.36.199]
L2: Amount needed to Allocate to SEPPAll SEPP calculations are done over your estimated life expectancy regardless as to the number of years that you will actually take payments.
When the SEPP plan ends – later of age 59.5 or 5 years – you lose nothing and you can pretty much do what you want until age 70.5 when the Minimum distribution rules apply.
2009-09-09 22:04, By: Gfw, IP: [188.8.131.52]
L3: Amount needed to Allocate to SEPPLet me expand on GFW’s response.
Many people do not understand that the “interest rate” used in these SEPP calculations have nothing to do with the actual earnings of the underlying investments.
In your situation, if you invested your SEPP 72-T account in “fixed interest” investments, such as CDs, bonds, etc., then you would earn $ 11,000 per year in income, and would have to use only $ 1,000 of your principal. After 5 years you would still have $ 217,000 left to use whenever you wanted if you had attained 59 1/2 years or older. If you had invested in growth stocks, paying an average of 2% in dividends, it would have “earned” about $ 4,500. So you would need to use $6,500 from the “value” of your investments, which would have increased or decreased, depending upon their performance. If they went up more than 4% in value, you would be using the appreciation to supplement the earnings/dividends. So your balance can go up or down accordingly.
The SEPP calculators do not plan that you will dissipate your entire balance by the time you reach 59 1/2 ( or 5 years). Because it is a retirement plan, many people have the misconception that it will be used up, rather than realizing that the calculation set up by the government was really to try to stop people from spending it too quickly, and therefore it is set up so people will have money thru most, if not all, of their retirement.2009-09-09 23:31, By: dlzallestaxes, IP: [184.108.40.206]
L4: Amount needed to Allocate to SEPPThanks for clearing that up for me.2009-09-10 02:00, By: Doc, IP: [220.127.116.11]