Choosing start date and accounts
L1: Choosing start date and accountsI have a client withseveral IRA accounts…brokerage, annuity and mutual funds…that I established for diversification. How do you “officially” designate which accounts will be used for the 72t calculations? If I want to start the withdrawals on July 2nd, can I use the values as of 5-31-09 for each of the established accounts I will be using? Also, once the calculation is completed, can I carve off the excess amount not needed into a seperate non-72t IRA account thatwill likelybe established after the first withdrawal date (due totrustee to trustee tranfer time)? Thanks2009-06-11 12:02, By: Advisor Steve, IP: [184.108.40.206]
L2: Choosing start date and accountsYour thought process is correct, but your timing is wrong. You must separate SEPP and non-SEPP IRA accounts before you start the plan, not after the first SEPP withdrawal. Do the calculation today, separate the accounts today, and start the withdrawals as of whenever in July that the separate SEPP account is set up. You only have to transfer enough to “fund” the SEPP. You do not have to transfer any of the other accounts.
And what is so sacred about July 2 that the client can’t wait a few more days to do it right ????2009-06-11 13:45, By: dlzallestaxes, IP: [220.127.116.11]
L3: Choosing start date and accountsHe’s probably running out of cash, thus the EARLY July date.
However, there is another timing issue here. A transfer to a non SEPP account AFTER the first withdrawal would bust the plan, but in addition, a transfer after the account balance date would also bust the plan unless the transfer was into another account that will be part of the SEPP plan.
In this case, first calculate the amount needed to fund client’s expenses through the end of the plan including taxes and inflation. Using the reverse calculatorfigure the account balance needed to fund the plan and DIRECTLY transfer any excess balance into the non SEPP IRA. Tell the IRA custodian there is to be no further transfers between the SEPP accounts and the non SEPP accounts. As soon as the transfer is done you can print out an account balance as of the same date for the accounts that will fund the SEPP. If there is no daily on line statement available, this could force the account balance to be as of 6/30. 5/31 is out. An early July distribution can be made before all the calculations are finalized if client is desperate, and adjustments can be made later to make the 2009 total distributions equal either the full annual amount or half the annual amount for a July start date.
There is no “official designation” of the SEPP accounts, other than the IRA custodian should be told which account are included and which are not. With respect to the IRS, just establish formal documentation showing the calculations, a copy of the balance of each included account as of the same day, the interest rate elected (no higher than the higher of the May or June 120 midterm rate), and whether joint or individual lives. Use individual as it will produce a higher distribution per dollar of account balance. Then retain this documentation so that you will have it in the event the IRS ever inquires. Some IRA custodians may want a copy and others will not.
2009-06-11 19:32, By: Alan S., IP: [18.104.22.168]