Busting a Sepp

L1: Busting a SeppWhat are examples of the actual ways you can “bust” a 72(t) plan? Sorry for the simplistic question but the FAQ didn”t cover this. The calculator shows a column related to busting the schedule but I don”t understand.
Thanx,
Rich2007-07-12 05:10, By: RichD, IP: [138.32.32.166]

L2: Busting a SeppGood morning Rich:
Busting a SEPP Plan is pretty straight forward. Assume you are taking $2,000 per month, $24,000 pre year from your plan. Then you decide to take an extra$1,000 out one year so the distribution is $25,000 for the year, as reported on the 1099-R. Now you have a busted plan.
Another way to bust the plan is to transfer funds into your SEPP Plan IRA account. Say you have a small IRA and you decide to combine it with an account in your SEPP Universe. Bust.
The next question you will probably come up with is can you take extra money from a SEPP Plan IRA for one of the other exceptions like education, buying a “first home,” etc. No. Only death and disability will let you out of an existing SEPP Plan. If this occurs then you run under those rules.
Hope this helps.
Jim2007-07-12 06:41, By: Jim, IP: [24.252.195.14]

L2: Busting a SeppYou can also make an error in establishing the plan such as using an interest rate that is too high, make an error on a beneficiary”s age etc. You come up with an annual figure for distribution and do not deviate from it. However, if the IRS were ever to request your calculations, they would find that your plan was invalid from day one. Unfortuneately for many, by the time the IRS inquires a few years have passed and the penalty is still retroactive to day one plus interest. Therefore, it is a good idea to closely check your calculations and have someone else that understands the process see if they come up with the same figure as you did. Don”t provide your number to them up front.2007-07-12 10:32, By: Alan S., IP: [24.116.66.98]

L2: Busting a SeppAlan:
Thanks for your input about the “bust from the get-go.” Too many times we have had posters tell how they chose a nice round percentage as their “reasonable interest rate,” say 7%, when the max allowable was 5.59% (today”s current rate). You just can”t pull factors out of the clear, blue sky.
Jim2007-07-12 10:55, By: Jim, IP: [24.252.195.14]

L2: Busting a SeppJim, Alan,
Thanks for the quick replies. I”m just starting to educate myself on all of my options. I just turned 55 in May and am still working. So far I have 35 years in the oil refining field, so I do have the usual company pension/401K type of benefits to work with.
So many things and terms to learn. Sad how many folks just wait until it”s almost retirement time to start learning l like I did.
So far my list of things to take care of and learn more about is centered on:

Health care options
Estate planning options
Beneficiary options
Distribution options
Hiring a professional after I understand the jargon & options
I”ll probably have many more questions. This site is so very much appreciated. I”m sure others will agree.
Regards,
Rich2007-07-12 14:19, By: RichD, IP: [69.236.85.248]

L2: Busting a SeppRich,
In your situation, you may not even need a SEPP or to assume it”s risks. Since you have already reached age 55 with your current employer and probably have a nice 401k balance, when you separate from service you will qualify for the age 55 separation exception to the early withdrawal penalty from your current plan.
That still leaves the major issue of what distribution options will your plan offer you? It would be nice if they allowed you to make periodic distributions with perhaps at least the ability to make a change once a year. That would get you to age 59.5 where you could do the IRA transfer and be free of early withdrawal penalty risks. However, if the plan only offered a lump sum option, the damage from too much income in one year would more than offset avoiding the early withdrawal penalty, and probably force you to do the IRA transfer at the time and set up the SEPP plan. 2007-07-12 17:02, By: Alan S., IP: [24.116.66.98]

L2: Busting a SeppThe chances are very good that you may/will be eligible to use one of the greatest tax-saving, and least known, tax provisions — NUA (“NET UNREALIZED APPRECIATION”). Check with your HR/Payroll dept. to determine how much of your pension and 401-k plans (separately) include COMPANY STOCK, which usually is put there by the employer as its funding of its contribution (pension) or its matching (401-k). They should indicate what the COMPANY”S COST BASIS was in those shares when the company contributed them to the plan. Then get the book J.K. Lasser “YOUR INCOME TAX” at your favorite super bookstore or office superstore (under $ 20), to research how and why you will save a fortune in income taxes. Make sure to get a very good, top notch tax specialist to work with you on retirement and estate planning issues, because you probably have a sizable estate because of the industry you worked in your entire career. You will need him also in planning the timing of your retirement. Also, if you haven”t already, immediately look into long-term care insurance before something happens and you are no longer eligible. I have my clients start to consider it in their mid 40s for that reason. Look at many other postings/threads on this website for numerous commentaries on all of the issues you will be considering. They will be intertwined with other topics because this is a SEPP 72-T site, not really for those other areas of specialization.2007-07-12 17:54, By: dlzallestaxes, IP: [141.151.80.243]