Can you start a SEPP plan after age 59.5?
L1: Can you start a SEPP plan after age 59.5?I am currently age 50 1/2 and would like to retire at age 60 . My goal in doing a SEPP would be to tap into more of my taxable 401(k) monies so that I don’t have to collect Social Security early and to leave my ROTH IRA in tact so when I reach age 70 1/2 my RMD amount is less so less social security becomes taxable.
is there even a need to do a SEPP once you reach age 59.5 if you haven’t already started one? Can you simply withdraw whatever amounts you need from IRA’s and 401ks?
is the only point of a SEPP to avoid the 10% tax and have early access to funds?2015-05-24 22:23, By: BaileysMom, IP: [18.104.22.168]
L2: Can you start a SEPP plan after age 59.5?Yes, the only benefit of a SEPP is avoiding the 10% early distribution penalty, so there is absolutely no reason to start a SEPP plan after 59.5.
If you want to reduce your RMDs, consider doing incremental conversions every year, particularly if you delay the start of SS benefits while you are doing the conversions. That will increase the chance that you will pay a lower tax on your conversions than what you would have paid for RMDs had you not converted. Conversions are not beneficial of you pay a higher rate that you would have paid on the RMDs. Of course, you apparently need some of the money on the retirement plan distributions to enable you to delay SS. That will result in the amount you can convert being reduced, but you still might benefit from converting modest amounts. You have to crunch the numbers.
2015-05-25 04:32, By: Alan S, IP: [22.214.171.124]
L3: Can you start a SEPP plan after age 59.5?You are thinking in the right direction. You need to do “retirement planning”.
Ideally, you would withdraw amounts from your IRA or 401-K between 59 1/2 and 70 if you are in the 15% tax bracket. To the extent that you do not need the cash during that pweriod, then you should do ROTH CONVERSIONS that would be taxed at 15%.
If you are married, remember that the survivor of you and your spouse will almost definitely be in the 25% tax bracket, so even ROTH CONVERSIONS in the 25% tax bracket could be beneficial.
Also, hopefully with income and appreciation within your plan(s) during this period, and beyond, will equal or exceed your distributions. If the distributions are at the Required MINIMUM, they start at about 3.75% at age 70 1/2. So, if your income and appreciation are 4% or higher, then your accounts will continue to increase even after 70.2015-05-25 05:42, By: dlzallestaxes, IP: [126.96.36.199]
L4: Can you start a SEPP plan after age 59.5?FYI, I am single.
thanks to both of you for the responses.After I posted and I was doing more research I kind of came to the same conclusion that it really only benefited to not have to pay the 10% penalty.
Also it makes sense that after age 59 1/2 I could take out as much as I wanted to I just have to pay the taxes and No penalty. Based on my current job situation it’s entirely possible that I won’t have a job at age 60 and I might have to retire earlier. Oh darn such a horrible situation kidding ….. Then I would want to consider a 72t.
I have also seriously thought about taking out enough to convert from regular IRA to a Roth IRA while still maintaining the 15% tax bracket. That will depend on how much non retirement funds I have saved by that time.
i am currently saving 26% of my gross income between 401k and IRA. I am saving about another 4% in non retirement accounts each year. Plus I get 7% from my employer with the match on 401k.
Approximately 31% of my total retirement savings is it a Roth IRA but only 10% is in a regular IRA with the remainder in my 401(k) . Just this past year I started to put my IRA into a regular IRA instead of a Roth so that I can take the tax deduction. I think I will continue to put it into a regular IRA now until I retire and then hope to convert it back to Roth when I’m in a 15% bracket.
I converted a huge chunk of my IRA money to a ROTH after the stock market crash in 2008’and 2009. I paid higher taxes to do it but wow what difference.
i am really only concerned about having enough money for myself and not about passing it on to anyone. I saved my whole life, now I just hope I can spend it on things I will enjoy.2015-05-25 15:42, By: BaileysMom, IP: [188.8.131.52]
L5: Can you start a SEPP plan after age 59.5?Great planning.
There is another important aspect that you should remember, or know about, since you have a 401-K.
Once you reach the year in which you will become 55, you won’t need a SEPP 72-T, if you have “SEPARATED FROM SERVICE” from your company, even if you go to work with another company. If your company allows it, you can take partial withdrawals from your 401-K, and they can be as needed. They do not have to be any set amount, or in any specific frequency. That could fit your prospective situation between 54/55 and 59 1/2.
In addition, check with your HR department about another fantastic provision of the tax code — NUA (“NET UNREALIZED APPRECIATION” of Employer Stock in Retirement Plans). Basically, it allows you to take the shares of employer’s stock from your 401-K or other COMPANY retirement plan, and transfer these SHARES to your non-retirement investment account. Then you just pay ordinary income taxes on the COST of those shares when the company put them in to the plan (usually as their match) or bought them in the plan. After that, the sale of any of those shares in your non-retirement account are taxed at the special LONG-TERM CAPITAL GAINS TAX RATES (15%, except for high income earners who pay 20%), even if you sell some or all the next day !!! If you plan properly, and sell shares when you are in the 15% regular income tax bracket, then the capital gains tax rate is ZERO !!!! ( Read an excellent discussion of this provision in J K Lasser YOUR INCOME TAX, at your library or buy it for $ 20 at a super book store.)
If you have significant salary, or a severance in the year you retire, consider setting up a margin account in your non-retirement account, so you can get cash flow until the following year when you will be in the 15% tax bracket.2015-05-25 16:37, By: dlzallestaxes, IP: [184.108.40.206]
L6: Can you start a SEPP plan after age 59.5?Dzallestaxes,
i work for a SMALL not for profit credit union so there is no such thing as company stock. The reason I might be done prior to age sixty is possible merger and thus not have, or not want to have, a job at the “new” credit union.
If i were to get some sort of large severance package that was negotiated, do you know of any way to structure it as maybe a deferred annuity such that it would be taxable over time rather than as a lump sum? I don’t want to be hit with huge taxes and waste the severance on taxes when it could be money in my pocket.
Because if I were to continue employment I would not want the severance package to then throw me into being a highly comp’d employee and thus not eligible for full 401k the following year. I have never been highly comp’d and would not ever expect to be.2015-05-25 16:54, By: BaileysMom , IP: [220.127.116.11]
L7: Can you start a SEPP plan after age 59.5?You might be able to try to structure a “consulting” arrangement over x years. Another approach might be based upon when in the year you “retired”, and your income to that date. Maybe structure the “severance” into 2 or 3 payments so that they fall in different calendar years. For example, if late in the year, maybe one payment in January, and another the following January.
Another possibility might be a “Rabbi Trust”, depending what your position is, and if the credit union was interested in this. Look it up by googling it to get the idea, and see if it fits your situation.
Also, since you are over 50, you can put $ 24,000 into your 401-K. I structured that for a client who was planning to retire, so that about $ 24,000 of her first $ 30,000 went into her 401-K because we still had to have taxable income to cover her 6.2% SS/FICA and 1.45% Medicare tax, and 3.07% PA income tax withholdings. That’s about 10%. Then you mighht have to cover your portion of health insurance while you are employed.
If this was a high percentage of your income, then you could always do ROTH CONVERSIONS in the 15% tax bracket. You could also look at the various exclusions from the 10% penalty that you might be eligible for, and just pay the applicable income tax of 15%.
This is all called TAX PLANNING and RETIREMENT PLANNING, and you might consider getting professional advice, which would probably save you considerably more than any cost for the consultation.2015-05-25 22:31, By: dlzallestaxes, IP: [18.104.22.168]
L8: Can you start a SEPP plan after age 59.5?thanks so much for the ideas. I research. If it gets to that point I have the benefit of knowing in advance so I will be able to get professional tax advice in advance so I will know what to negotiate.2015-05-27 02:04, By: Baileysmom, IP: [22.214.171.124]