Calculating tax on SEPP payments
L1: Calculating tax on SEPP paymentsHello, I have just started a new SEPP plan in June 2013, BDAY 8/15/66, from a tax deferred annuity I have had for many years. This is a non-qualified (after tax money) annuity which falls under the 72t rules. My question is this – will the entire annual distribution be taxable as ordinary income, or will part of the SEPP payment be considered as return of principal since the account has my original money plus the interest earned over the years. The annuity has a guaranteed minimum rate of 3% which is basically what the SEPP distribution amount totals for the year. I would appreciate any info you have on the subject regarding the amount of the SEPP that is taxable. Thanks.2013-07-21 18:19, By: jbuck815, IP: [184.108.40.206]
L2: Calculating tax on SEPP paymentsSince you are under 55, divide your “Investment in Contract”, i.e. contributions, by 360 ( which is the number of “expected monthly payments”). The result is the NON-TAXABLE PORTION of each monthly payment. (IRS Code 72(d)(1); IRS Notice 98-2)
If paymens are based upon yoint lives of he annuitant and account beneficiary, ther is a separate table based upon the combined ages at the start date, which is a divisor of 410 if that combined age total is 110 or less.2013-07-21 18:37, By: dlzallestaxes, IP: [220.127.116.11]
L2: Calculating tax on SEPP paymentsYou are making distributions under 72q, not 72t – very similiar, but not identical.
Unless you actually annuitize the contract for your actual life expectancy , the rules for non-tax qualified annuities are interest first and then principle. To the extent that distributions come from total interest earnings, they would be 100% taxable.2013-07-21 18:58, By: Gfw, IP: [18.104.22.168]