L1: Comments welcomeHello
I went to the IRS office, sought help from a tax advisor, then found this website. Here’s my issue, open to ideas on the following questions. Thanks.
Current age: 58
Value of IRA 1/1/2014 – $240K
IRA premature withdrawal in 2014, $14.5K
IRA premature withdrawl in 2015, $20K
Two questions1) Can I complete SEPP form 72T with my bank today, with a start date retroactive to 1/1/2014, not today’s date? That would allow me toamendmy fed and state 2014 tax return because I paid the 10% penalty. I tried calling the author of the IRS ruling, the phone was disconnected.
2) Considering I am 58 today, can I arbitrarily pick a SEPP value of $20K for the next five years2014, 2015, 2016, 2017, 2018or must I pick a different value based onthe tax calculator, select annuity, amoritization or RMD – when I tried these tools I could not get an answer? When I met with the IRS employee, I did receivean answer, and my tax advisor does not know if $14.5K and $20K are substantially equal withdrawls from a $240K traditional IRA.
Any thoughts would be appreciated.
58 CT SEPP newbie2015-11-30 20:36, By: 58CT SEPP newbie, IP: [220.127.116.11]
L2: Comments welcome1. You didn’t tell us what the IRS employee said.
2. You did not indicate what date you took your first distribution.
3. You cannot take arbitrary distributions. This site gives you a calculator to determine the correct annual amount.
4. If $ 20,000 was the correct figure for a $ 240K balance as of 1/1/2014 (actually 12/31/2013), then $ 14.5K could never be a correct figure because that is 72.5% of the $ 20K, and you are only allowed to do prorata distributions base upon full months. If you started in April 2014, that would be 9/12 which is 75%. If you started in May 2014, that would be 8/12 which is 66 2/3%.
5. Therefore, if the $ 14,500 happened to be the correct figure, then you busted the plan in 2015 when you took $ 20K already. If $ 20 is the correct figure, then you took the wrong amount in 2014.
I think you are looking for trouble by trying to retroactively establish a SEPP 72-T as of 1/1/2014.
When did you take the $ 20K in 2015 ? What was the balance of your IRA at 12/31/2014? If you did not take your 2015 distribution before 6/30/2015, then what was the highest month-end balance in 2015 before you took a distribution, because you might be able to jsutify a plan for 2015, at a lower cost than the $ 1,450 penalty you paid already for 2014, and avoid a penalty for 2015 by taking the correct amount for 2015 by taking more in Dec, or repaying any excess before 12/31/2015.
It would be helpful if you indicated your DOB.
Your best approach might be to forget using a SEPP 72-T plan if you are not disciplined enough to stay within the annual amount until 5 years after your first distribution in 2015. BTW, I assume that you took it all at one time. If so, what date? If not, how much did you take, and when ?2015-11-30 21:32, By: dlzallestaxes, IP: [18.104.22.168]
L3: Thank you DLZALL TaxesThank you dlzakkestaxes for your insightful comments, questions.
Most importantly,I appreciate your time and learned today that filing for the SEPP exemption is complicated and must be done correctly. My new comments are:
1) When I askedSEPP 72(t) questionstothe IRS employee, she would not offer tax planning advice, but confirmed that I would be qualified based on answers to her questions.It was essentially a waste of my time because she did not direct me to the process for calculating a substantial and equal payment.Bothmy HR Block tax preparer, and Bank CFA advisors, both had no experience with SEPP and that’s why I am studying this topictoday.
2) My first premature IRA distribution was for a $5000in 2009. Followed by other annualwithdrawls from a traditional IRA in non equal amounts in 4 of the past 6 years. In 2014, Iwithdrew $14.5K, via multiple unequalwithdrawals- a 10% penalty was paid on all withdrawals.
3) Today I wantto create a SEPP IRA withdrawal plan for the next 5 years even though I am 58,and comply with proper tax law. My originalidea was to communicate with my bank, file a form indicating that I wanted the SEPP to start last year, get a corrected Form 1099R for 2014, and perhaps refile my fed and state tax return for 2014. I don’t have confident advice regarding whether or not thisis allowed because I withdrew a total of $14.5K in 2014, and $20K in 2015.My desired outcome would beto get a refund of the $1,450 excess 10% fed tax paid for premature withdrawl and also might get a refund forexcess tax for CTand avoid the 10% tax penalty for 2015.
4) The value of my IRA was $257K on 12/31/14. In 2015, I withdrew $20K via four unequal withdrawals used to pay taxes, living expenses, not school or a new home. My plan is to use a SEPP filing date of Dec 15, 2015, for my DOB (10/15/1957) and withdraw the same amount in early 2016 to pay taxes again.
5) Closing value each month: $260.6K, $272.3, $255.6K, $259.7K, $259.4, $252.5, $245.8, $231.8, $224.5, $235.9, Today $232.3K highest month end balance before distribution was $272.3K before I used the money to pay taxes.
7) Thanks to this website, forum and your comment to use the highest value for 2015 of $272.3K, the SEPP tax calculator saysthe annual distribution options are: MDM $10085, amoritization $13,349 and annuity $13,292.
I am receptive to any ideas. Mynext steps might be to:
8) Present the SEPP calculationto my HR Block tax advisor, start a SEPP plan for Dec 2014, get a corrected 1099R for 2014 regarding my IRA withdrawl,and refilea federal and state return for 2014 with $13,349 as an exemption in order to generate a federal and state tax refund.
9) My probable action is to start a new SEPP plan on Dec 15, andreport $13,349 for bank form SEPP/72(t) Distribution Request for First Clearing House they will issue a 1099R with exception code 2 necessary for my 2015 tax return.
Thanks again for your ideas or from anyone else with information that can get me to file a SEPP properly.2015-11-30 23:45, By: 58CT SEPP newbie, IP: [22.214.171.124]