Annual vs. monthly vs. xx payments
L1: Annual vs. monthly vs. xx paymentsHello,
I’m going to be starting a new SEPP in early March (target 3/6/17). My birthdate is 4/21/66, so I’m 50 and will be 51 in April.
I have two categories of questions:
1. I just want to confirm that I use 51 as my age even though I don’t turn 51 until April and am taking first distribution in March? I’m quite certain this is the case as this is what your calculator does, but the language in the code is a bit weird, so just want to be sure.
2. I would prefer to take monthly payments, but obviously, the payments would have to be larger this year than next, since I’ll only get distributions Mar-Dec.
a. Can I take fewer larger payments this year and 12 equal payments next year?
b. Is it an option to take an annual distribution this year and then monthly next year?
c. Is it correct to assume it’s the calendar year that matters, vs. 1 year from first distribution since it’s taxes we’re talking about?
d. In general, how do you recommend someone deal with the first year when they’re taking your first distribution after January, so as not to trigger a bust on your SEPP?
Thanks very much!2017-02-02 04:08, By: Carissa, IP: [220.127.116.11]
L2: Annual vs. monthly vs. xx payments1) Yes, you use age 51.
2) a) Yes, you can change your distribution pattern around. The year end 1099R amount is what matters. For your first year you can take out the full annual OR pro rate by the month, so 10 monthly payments starting in March will also comply. Or you could start the monthly payments in March and take out a one time separate distribution of 2 months worth. If you set up monthly distributions, make the distribution date between the 8th and 20th of the month to stay away from month end pitfalls.
d)Probably better to take out the full annual instead of 10 months worth so you have some padding for emergencies. I would set up your monthly payments as 1/12 of the annual calculation so they never change. Then take out the extra 2 months when you want to as a separate distribution. All this IRS cares about is your final 1099R which must be exactly correct. So after your final distribution in December, carefully add up all your distributions for the year to make sure the total is correct. If you are short, you have some time to ask for a distribution of the balance, or if some error caused you to exceed, you can roll the excess back for up to the amount of the last distribution.2017-02-02 17:52, By: Alan S, IP: [18.104.22.168]
L3: Annual vs. monthly vs. xx paymentsThanks, Alan. Especially appreciate the idea to set up the monthly payments so they don’t change and then take out the extra 2 months. Was worried about having to remember to change something between Dec and Jan payments so this will work great!
Have a great day!2017-02-04 19:30, By: Carissa, IP: [22.214.171.124]
L4: Annual vs. monthly vs. xx paymentsOne other question, please. I have my accounts set up – 4 accounts with equal shares/amounts in each. I will pull 1/4 from each account each month, starting in March.
This site suggests using the account balance from Dec 31, 2016 as “reasonable”, however, these same accounts did not exist that far back. Would it be considered “unreasonable” to use, for example the Feb 28,2016 balance when I initiate my SEPP around March 7?
Also, I read RR 2002-62, which says “For example, for an IRA with daily valuations that made its first distribution on July 15, 2003, it would be reasonable to determine the yearly account balance when using the required minimum distribution method based on the value of the IRA from December 31, 2002 to July 15, 2003.”
What does it mean to determine the balance based on the value of the IRA from a range of dates? The value is different at any point in time (when the market is open), so this confuses me. Are they saying you can choose any balance within that timeframe?
2017-02-12 23:23, By: Carissa, IP: [126.96.36.199]
L5: Annual vs. monthly vs. xx paymentsI think you meant to say Feb. 28, 2017, not 2016.
It means that you can select any balance on any day usually for up to about 6 months prior to the date of the first distribution. Usually a month-end date is selected because you get monthly statements that document that value, but you may be able to download a listing from your IRA accounts as of any date. Most of the time the highest month-end balance is used.2017-02-13 00:42, By: dlzallestaxes, IP: [188.8.131.52]
L6: Annual vs. monthly vs. xx paymentsThe date selected for the account balance must also reflect a valuation that is reasonable with respect to the value on the first distribution date. For people that have individual stocks in their IRA, value shifts can be dramatic in a short number of days. The IRS has not defined what a reasonable difference would be, but I think anyone who uses a balance more than 15% higher than the value on the date of the first distribution could be on thin ice, even if the account had been that much higher just 3 weeks earlier.2017-02-13 03:06, By: Alan S, IP: [184.108.40.206]
L7: Annual vs. monthly vs. xx paymentsYes, I meant 2017. Sorry about that. Thank you both for your feedback – I understand now!2017-02-13 15:10, By: Carissa, IP: [220.127.116.11]