Annuity 72t distribution
L1: Annuity 72t distributionHi: I would like to start a SEPP come next January with my deferred fixed annuity. According to the annuity company, they can start distributions but I would have to fill out an IRS form 5329 at tax time. Nothing more on their end can be done, coding properly, etc. Is this something I can do easily, with the help of my accountant, or from what I am reading here, a complicated process needing more sophisticated financial help. Do I have to have 2 people do this, one for regular taxes and one for the SEPP? I am perplexed as where to go from here. I will be 55 next year. I don’t want any IRS problems. Some guidance would be appreciated, thanks!2009-07-06 22:26, By: dihanna, IP: [184.108.40.206]
L2: Annuity 72t distributionDeferred annuities (non-tax qualified) are governed by 72(q) instead of 72(t), but the rest is the same.
You have 6 months to learn and study. It is only complicated if you make it complicated.
Start by reading the FAQ on this site. For more information, buy Bill Stecker’s book – it is the ‘bible’ on SEPP plans.
2009-07-06 22:41, By: Gfw, IP: [220.127.116.11]
L2: Annuity 72t distributionIf you have a 401-k from work, and you retire or are terminated in the year you will become 55, or older, then you can take distributions without any 10% penalty, if your employer’s plan has provision for this.
If not, and you have an IRA, then you can set up a SEPP 72-T plan for 60 months, and take out the same annual distribution in any frequency. ( The first calendar year you can take a prorata distribution rather than the full annual distribution.)
Are you fixated on using your deferred annuity because that is your only retirement account ?2009-07-07 03:43, By: dlzallestaxes, IP: [18.104.22.168]
L3: Annuity 72t distributionYes, wish I had another IRA, but have to use what I got due to some unforseen circumstances. So can I just start an equal 60 month distribution myself only then using the form 5329 when I do my taxes? Is this enough? I do know you need to do accurate calculations. There are a lot of calculators out there, but reading here, things need to be quite precise and maybe professional help is needed? As someone answered beforehand, it is a 72q distribution, hopefully the same deal. Should I consult someone before I begin, or is it possible to just do it myself, what is required? Anyone out there done this? Thanks for your responses btw.2009-07-07 04:25, By: dihanna, IP: [22.214.171.124]
L2: Annuity 72t distributionYou would not need separate tax preparers for regular taxes and SEPP/5329 form. You will receive a form 1099-R for your distributions. The 5329 is a simple form prepared by most, if not all, tax software. It tells the IRS that you are eligible for one of the exceptions to the 10% EARLY DISTRIBUTION PENALTY. If not, it indicates the penalty amount to be included with your tax return.
I’m not familiar with all of the nuances of 72(q) and annuity payments. However, if you have an annuity within a SEPP 72-T, then you have to be careful because the annuity distribution schedule may not be consistent with the SEPP 72-T calculated distributions, and you should therefore keep a cash reserve in a SEPP 72-T to cover any shortfall or paymengts late in December.2009-07-07 16:24, By: dlzallestaxes, IP: [126.96.36.199]
L3: Annuity 72t distributionThank you for that. Yes, I do have enough in there to support payments for the 5 years and thereafter, I guess all that would need to be done when I start is calculating the distribution at that point. I was told the amount I could take out annually come January using the December 31 balance I extrapolated using the fixed amortized schedule. I would go a bit below to be safe…or do I have to submit how I got this amount to the IRS? Or is this figured out by them? Sorry for all the questions, but now that I know I can just fill out the 5329, I want to fill it out correctly. Again, thanks2009-07-07 23:46, By: dihanna, IP: [188.8.131.52]
L4: Annuity 72t distributionYou can’t just decide to do less – that will present a problem. You could decide to use a lower interest rate in the calculations andthe amount you withdraw will be less.
You need to be prepared to documenthow you determined the annual distribution… Your age, the interest rate, the method and the balance. At a minimum these four items must match the annual distribution.You can assume thata variation of fifty cents or less on the calculated annual distribution is OK. Anything else may be a problem.2009-07-07 23:59, By: Gfw, IP: [184.108.40.206]
L5: Annuity 72t distributionThanks….so where do I find the correct calculators? Can I use the ones here at that time, or does the IRS have them in their literature? 2009-07-08 00:15, By: dihanna, IP: [220.127.116.11]
L6: Annuity 72t distributionMerely use our calculators.
As a reference point, you may want to read the following article… http://72t.net/Articles/ArticleShow.aspx?WA=92e48a79-6501-4b42-8b35-64cbf76fdf66
2009-07-08 00:32, By: Gfw, IP: [18.104.22.168]
L7: Annuity 72t distributionAfter reading all of your posts and the responses, I’m not comfortable with you starting a SEPP Plan at this point. My sense is that you still don’t have a firm grasp on the concepts and that you are very frustrated. Since you have 6-months before you begin your first distribution, let’s see if we can direct you to setting up a good plan with some questions and further comments.
1. What is the source of the funds in your deferred, fixed annuity? If the source is from pre-tax contributions like a Traditional IRA, 401(k) or a similar plan or plans, then you will use Section 72(t). If the source is after-tax funds like savings, checking or you hit the lottery, then you will use Section 72(q).
2. When did you purchase the deferred, fixed annuity? Do you currently own the annuity or are you contemplating making a purchase? (If the later then I suspect you have been approached by an agent with using SEPP Distributions as a “hook” to get you to buy.) What is the surrender schedule, ie, number of years and surrender percentage schedule? (If you haven’t bought then you may have better options for an investment plan and you should seek advice from a Registered Investment Advisor (RIA).)
3. Are you planning to “annuitize” the annuity or are you planning to take systematic withdrawals? This is very important since a whole different set of rules will come into play if you annuitize, and GFW can really speak to this point.
4. If you will be taking systematic withdrawals, you need to compare the amount of “free withdrawls without penalty” in theannuity contractto the amount of your calculated, required SEPP distribution amount. If the required SEPP distribution amount is greater than your “free withdrawal” amount, then you have a problem.
5. Like GFW stated in one of his earliest posts, spend the most nominal amount of money to purchase Bill Stecker’s book, “A Practical Guide …,” which is available under “Website Sponsors” in the upper left side of this page, and study it well. After studyingBill’s book you will be quite well versed on 72(t) / (q) issues. It contains more concise information and better tablesin one place than you will find in any IRS Publication or the IRS website.
6. IRS Form 5329 is the least of your worries. If your accountant is knowledgeable about SEPP Plans (unfortunately not all CPA’s really understand it), or if you use one of the tax preparation programs, completing this form is a breeze.
(AFTER THOUGHT: Unless your accountant / tax preparer is filling out your taxes with a pencil instead of a computer program, even the least-knowledgeable-about-SEPP-Plans preparer using a tax program should getForm 5329 correct. If you preparer IS NOT using a tax program but is still doing it by hand, then you definitely need to find someone else!)
Let us know exactly what kind of money we are talking about so we will have a better understanding of your situation.
Jim2009-07-08 14:59, By: Jim, IP: [22.214.171.124]