Complicated SEPP beginning balance, will my plan work?
L1: Complicated SEPP beginning balance, will my plan work?Hi, let me give my basic info and then what I am terming “complicated” info:
Date of first SEPP withdrawal: 7NOV2017
SEPP method to use: amortization
Beginning SEPP balance (based on value of all applicable sources at close of business on 7SEP2017: $723,997.01
SEPP interest rate used: 2.33%
Annual withdrawal calculated using your site’s spreadsheet: $32,767.31
My plan would be to withdraw all of 2017’s annual withdrawal amount ($32,767.31) on 7NOV2017, and then withdraw all successive years’ annual withdrawals on 18JAN of those years.
My complications come with my SEPP starting balance and sources. Here is my plan of sources:
1. I have a Self-Directed IRA. This Self-Directed IRA would be one of the sources and it has a number of items within this IRA. Here they are:
a. IRA cash balance = $2,392.32
b. Physical Gold American Eagle Coins = $432,810.00
c. Physical Silver American Eagle Coins = $5904.80
d. Schwab stock investments = $20,101.51
2. I also have a retirement account (from a previous employer) managed by AON Hewitt and it is comprised of the following:
a. Former employee stock (mostly preferred shares plus some money market) = $227,992.28. My plan would be to only use this source as part of my starting SEPP value, and then not touch this particular account, no adds or withdrawals, until after completion of my SEPP. This decision is due to the fact that I may see NUA if I was to cash out some of my preferred shares during my SEPP time period, so I just want to prevent that possibility altogether. I also want to mention that this account does receive quarterly dividends from the stock shares, and these dividends are automatically re-invested into more former company stock and stays within the account.
3. I have a retirement account with my current employer that only contains a money market value and has received no deposits from me or any matches from my employer since 1AUG2017. The value of this account is $34,796.10. Also, I will be officially separating from this employer on 31OCT2017.
I total all these souces to get my SEPP starting balance. My plan for withdrawals would be to use money market or cash withdrawals to pay for my annual withdrawals, and then once those items are depleted, begin selling the gold coins to pay for annual withdrawals.
Will my plan work?
Thank you so much for looking this over!
2017-10-06 15:28, By: MIKEB87, IP: [18.104.22.168]
L2: Complicated SEPP beginning balance, will my plan work?I don’t think so as you have described your situation.
First of all, IRAs and 401-K/employer plans are considered as distinctly separate “accounts”, and “n’er the twain can meet”. Therefore, you would have to set up separate SEPP 72-T accounts for your IRAs, and then for your Employer Based Retirement accounts (in # 2 above).
Second, if your employer based account is invested in preferreds, and even if there is “some” common shares, I doubt that the “Unrealized Gain” in that account is significant enough for you to benefit from the NUA provisions of the IRS Tax Code. It usually is not beneficial to use NUA until these gains are at least 25%. You should check with the Plan Administrator to determine your cost basis and Unrealized Gains to see if this is a viable option for you to even consider.
Third, your IRA accounts have no cash liquidity to take its withdrawals from. The cash balance and Schwab investments will probably be entirely used for the IRA SEPP distribution ( which I think will be about $ 23,000) in 2017, and have -0- left for your Jan 2018 distribution.2017-10-06 15:48, By: dlzallestaxes, IP: [22.214.171.124]
L3: Complicated SEPP beginning balance, will my plan work?Thanks for responding and pointing out some important issues prior to me doing anything. For clarification, do I need cash in my IRA from the start of my SEPP to perform my annual SEPP withdrawals, or could I have stocks/bonds/gold coins/real estate/etc. in the IRA from the start of the SEPP … and then sell enough of these assets each year to pay my annual SEPP withdrawal?
Also, annual fees or appreciation/depreciation of my IRA assets, do these built-in changes to my IRA used for SEPP need to be counted as anything to do with my annual withdrawal amount?
You and your site are really helpful. Thanks again.2017-10-09 17:29, By: MIKEB87, IP: [126.96.36.199]
L4: Complicated SEPP beginning balance, will my plan work?Basically, you do not need Cash in your SEPP 72-T when you start. You can change investments whenever you want during the life of your SEPP 72-T. Usually people start SEPP 72-T plans because they need additional funds for living expenses before reaching 59 1/2.
You might have a different situation. If you are doing this approach in order to distribute your retirement funds while you are in a low tax bracket, and if you do not need cash, then I think you could probably do “distributions in kind” instead of in cash, in which case you would use cash just to get the annual distribution to the exact required annual amount.
However, if you do not need the funds until 59 1/2, or later, and are just using it to distribute your retirement funds, then consider just doing ROTH CONVERSIONS, which are not limited based upon your taxable income or AGI.
Expenses of the accounts, or of any of your investment activities, have no affect or consideration related to your SEPP withdrawals.
I do 2-hour presentations to tax practitioners about the numerous reasons against ROBS and Real Estate activities in IRAs. The rules are very complex, but I think you know that already.
2017-10-09 19:41, By: dlzallestaxes, IP: [188.8.131.52]