Can you take more than 72t rate??
L1: Can you take more that 72t rate??OK…Silly question…There are rumors flying around that if (for example) a 72t calculation comes out to be $32,500 per year….Ammortization method on $750k balance….You can take out say $70,000 and not be penalized….that as long as th 1099 says exception, you can take out the higher amount…..is ther ANY WAY to do this (or take money out of an IRA that’s a higher amount than the 72t rate) and not get penalized?? Person is 51yrs old…2009-03-30 15:49, By: PETE, IP: [184.108.40.206]
L2: Can you take more that 72t rate??Yes Pete, that’s a pretty silly question. If you could do what you are suggesting then why have the 72(t) rules at all? No, you can’t do as you suggest.
By the way, who is spreading these silly rumors? Did it come from a chain e-mail you received or something else that is just as “authoritative?”
Jim2009-03-30 15:58, By: Jim, IP: [220.127.116.11]
L3: Can you take more that 72t rate??Always fun to theorize how this could become doable barring a flawed 1099R. There are a couple rather far fetched possibilities:
1) Your SEPP account holds a volatile stock such as a failing company that received a taxpayer bailout. The stock gains 400% so your account balance is now 5 times higher than the year you started the plan. Using the one time switch to RMD, you could about double your annual distribution.
2) If in your first year of the SEPP you become disabled or perhaps have an uninsured medical expense of 70,000in excess of 7.5% of your AGI, you could opt out of the SEPP and claim the other exception to penalty. In a case of total disability you would not be penalized on past year SEPP distributions either, but for one of the other non death exceptions, it would have to be your initial year or the prior year distributions under the SEPP would be penalized plus interest.
In any event, these possibilities are remote and probably not what they had in mind.
2009-03-31 00:01, By: Alan S., IP: [18.104.22.168]
L4: Can you take more that 72t rate??I have a better theory…The broker owns his own B/D and is issuing 1099’s w/ the distribution code as “exception” for S.E.P.P……I just saw my 3rd set of 1099’s with these outrageous distribution amounts and realized, he falsifying 1099’s since he own’s the printer makingthem…. “click-clack”…..I hear handcuffs…2009-03-31 00:47, By: PETE, IP: [22.214.171.124]
L5: Can you take more that 72t rate??Well, I did say “barring a flawed 1099R”…..
Youcould check into the IRS informants program.2009-03-31 03:53, By: Alan S., IP: [126.96.36.199]
L6: Can you take more that 72t rate??OK, sillyness aside. It sounds like Pete may have some real problems and should get some professional help really fast. My suggestion is to contact Bill Stecker, aka, “TheBadger,” and let him review your situation and help get things cleaned up.
Regardless of what the 1099-R says, and regardless of what the Broker told you about taking out more than the SEPP Plan calculated distribution amount, the taxpayer … that’s you, Pete … is responsible for correctly calculating and operatingthe plan throughout the entire process. Guess who the IRS will call on to pay up the penalties and interest for a defective plan? It surely won’t be the broker. No, it’s going to be the person or persons signing IRS Form 1040.
Get help and get this thing cleaned up FAST!
Jim2009-03-31 13:43, By: Jim, IP: [188.8.131.52]
L7: Can you take more that 72t rate??The situation is not with me…..Sadly, it’s with a group of employees who went with this broker……2009-03-31 17:44, By: PETE, IP: [184.108.40.206]
L8: Can you take more that 72t rate??OUCH!2009-03-31 18:13, By: Jim, IP: [220.127.116.11]
L3: Can you take more that 72t rate??let me ask the original question in a different manner:
I had thought that IF before you start, you could supply documentation of a rate of return in excess of the 120% rate, you could calculate distributions far in excess of the ones shown in the calculator by submitting an “exception” in writing and getting it approved.
Is above the “Private letter Ruling” ?
Where they now show a “reasonable rate = 2.33%” , what if you invest the entire account in Nuveen’s JPZ closed end taxable fund which is currently paying out $13%.
I would want to book the 72T at only 7% as an example for a payout of $7500/$100K rather than the 2.33% yielding only $3850/$100K.
BTW, what exactly is “IRS penalty interest rate = 3%” and how is it used above??
I have invested in Nuveens for over 25 years so no lectures please on the variability of principle or dividends paid. If over the long haul, the actual dividends were say 9%, then I am not touching the principle at all.
BTW, please correct me if I am wrong here, but I presume that once you sign up for SEPP/72T at say age 54, you cannot cancel it after 59 1/2 ….or is that the essense of the five year rule?? So if in six years the rates are much higher, you can adjust the payout
Stew Corman from sunny Endicott2009-04-29 19:29, By: Stew, IP: [18.104.22.168]
L4: Can you take more that 72t rate??Revenue Rulling 2002-62 identifies three acceptable methods for calculating a 72(t) / SEPP Plan: Fixed Amortization, Fixed Annuitization and Required Minimum Distribution. It leaves the door open to other methods but requires submittinga Private Letter Rulling (PLR) which may or may not be approved. To my knowledge, and others can confirm or refute this, the IRS has not approved any other concepts for a qualified SEPP Plan. I’m sure Alan, TheBadger or GFW can better comment of this item.
Revenue Rulling 2002-62 established using the 120% of the Federal Midterm Rate (FMR) from either of the two previous months to calculate your distribution amount. So if you take your first distribution in May, 2009, then you may use the 120% FMR from either March or April, 2009, for your calculations. VERY IMPORTANT POINT: Actual investment performance (returns) have nothing to do with the 120% FMR calculation.
The 5-year, age 59.5 rule establishes that you must take SEPP Plan distributions for 5 complete years, and until you reach real age 59.5. If you start at age 56 1/2 then you must run for 5 complete years and your age will be 61 1/2 before you may make any changes to your plan. The one “change” exception is the one time switch from either Fixed Amortization or Fixed Annuitization to the RMD method. This change does not affect the timing of how long your plan runs. If you start at age 52 then your plan must run until your actual age 59.5, or 7.5 years.
The calculators on this site will give you information to set up an IRS compliant 72(t) / SEPP Plan. Hopefully this answers the questions about “what you thought” or “what you heard” or whatever other information you have read or been told that doesn’t fit into this explaination or other information on this web site.
PS: This is addressed to your last paragraph. Once you satisfy the 5-year, age 59 1/2 rule, you may adjust distributions anyway you want. Take more, less or the same amount from your account. You may also freely combine with other like accounts, or split apart youraccount into multiple accounts. You gain a lot of freedom once you satisfy the SEPP Plan requirements.2009-04-29 21:13, By: Jim, IP: [22.214.171.124]
L5: Can you take more that 72t rate??Jim,
Thanks for your detailed response.
Let me clarify my speculation in a few simple sentences:
I am NOT talking about dreaming up my own “acceptable method” ie choose their “amortization”.
Just submit for a PLR an interest rate much higher than theirs with sufficient documentation to justify the higher %. Let us say as an example that some bank offers a 10 year CD at 4.5% ..why should we have to accept only 2.33% ??
2009-04-29 22:40, By: Stew, IP: [126.96.36.199]
L6: Can you take more that 72t rate??Good morning Stew:
I may be wrong and if so please tell me. But from your last post I think you are saying two things: 1) You intend to file a PLR, and 2) you have never filed a PLR before.
Is this correct? If so then my suggestion is that you find a qualified CPA with vast experienceon the subject of 72(t) / SEPP Plans, and withfiling PLR’s. This is not a “DIY” project and it is expensive. The PLR Filing Fee is about $10,000, plus CPA fees to put togethera goodPLR package. You may be looking at total costs in the neighborhood of $20,000 to $30,000, or more. Also, don’t expect a quick response from the IRS. Bill Stecker, who posts here as TheBadger, fits the CPA qualifications I have described. He also wrote the book on SEPP Plans which is available on this web site, and is a “must study” for anyone doing anything in this arena. Bill will probably comment on this and give you an opportunity to contact him for assistance if you wish.
Just my thoughts, and good luck.
Jim2009-04-30 14:32, By: Jim, IP: [188.8.131.52]