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L1: decath20My birth date is 12/14/1961 and will turn 55 this December. I will start SEPP payments at or around Jan 1, 2017. I am going to use the amortization method on my IRA account and leave our ROTH IRA’s and my wife’s IRA untouched until after we turn 59 1/2.
I just found your site and discovered the article that talked about recalculating on an annual basis for the amortization method. I did not know you could do that. I thought with the amortization method, it was set in stone for 5 years or after 59 1/2, whichever comes later.
I just want a clarification on this because if that is true, I would take advantage of that given the current very low interest rate environment which gives me a lower distribution than I would like. As it is, I was going to supplement my SEPP payments (I’m retired) with taxable investments. If I’m allowed to recalculate each year, presumably with higher interest rates, higher account balance and older age, it would mean I could take less (or zero) $ from my taxable investments.
MetalDecathlete2016-11-28 15:12, By: MetalDecathlete, IP: []

L2: decath20There is some significant “planning during retirement” that you should discuss with your tax accountant or a qualified financial planner. The 15% tax bracket for a joint tax return is about $ 75,000 for 2016. When you add the Standard Deduction of $ 6,300/person (i.e. $ 12,600/couple), that means that at least $ 87,600 of gross income is taxed at 15%.
This is significant because under the current tax laws, “qualified” dividends (which is most of them from common stocks and mutual funds), capital gain dividends, and long-term capital gains (> 1 year) are all taxed at a -0- rate.
Depending upon your other taxable income, such as pensions, etc., it might be prudent to consider doing ROTH IRA CONVERSIONS from your taxable Traditional IRA accounts up to that approximate limit of about $ 86,000. Further, you should consider deferring SS benefits until 70 in order to increase them by 70% over the benefits at age 62, under current regulations.
If you follow these approaches, then it would make sense for you to plan to use the proceeds from the income and sales of your taxable investment accounts during this period, especially to the extent that it can be done tax free. The ultimate result could be that you convert all of your taxable IRA accounts (which will ultimately be taxed at 25% on the distributions when either of you is a single survivor, or by your adult children as beneficiaries).
Separately, if you have a 401-K/403-B, then you probably should not set up a SEPP 72-T because there is no 10% penalty for early distributions if you “separate from service” in the year that you will 55, or are already 55 or older. Further, if there is “employer stock” in you pension or 401-K, then research the special tax provisions for NUA (Net Unrealized Appreciation) on this website, IRS publications on Retirement, or google it.2016-11-28 15:42, By: dlzallestaxes, IP: []

L3: Starting SEPP at 55Thank you for your reply dlzallestaxes. The bulk of our investments (83%) are in my IRA, thus the reason to retire and start SEPP contributions from that alone. The taxable accounts do not contain enough $ to last for 5 years, only to supplement our income about 5 or 10k per year. As it is, the SEPP payment will be about 22k under the 25% tax bracket limit, allowing us to stay comfortably in the 15% range. Adding 5 to 10k from taxable is still comfortably under the 25% tax bracket and also leaves room for TIRA to ROTH conversions every year before breaching the 15% bracket.
However, I’m interested in leaving as much of the taxable investments alone as possible, as we have plans to use that eventually for a property purchase after we stop rv’ing around North America. Thus my interest in the annual recalculation for the amortization method, as long as it is perfectly legal.
Here is the breakdown (% wise) of our investments.
My IRA (83%)
Her IRA (2%)
My Roth (3%)
Her Roth (3%)
Taxable (9%)
Regards2016-11-28 16:00, By: MetalDecathlete, IP: []

L4: Starting SEPP at 55Yes, you can adopt the recalculation method if you wish, but this method will increase the chances of your having contact from the IRS. The IRS sees very few of these plans, so the initial reaction to your changing distribution amount each year might be that you busted your plan. You might have to produce your calculation for one or more years to show that the calculation is correct. Not only that, but having to do a new calculation every year using the same date (usually 12/31) for your IRA balance, current interest rate, and age makes it more likely that you could make a calculation error on one of them.
Depending on how your IRA is invested, you could have some fairly large swings in the annual calculation, which will make budgeting expenses more challenging. For example, a loss of 20% in your account balance plus the amount you withdrew for the year would more than offset any increase resulting from your new age and interest rate increases.
Also, note that you CAN convert your SEPP TIRA account to a Roth IRA but you will have added taxes to pay. Most likely you would only do a partial conversion and then the TIRA and Roth IRA would both be included in your SEPP universe, and you would have to use both account balances for your annual recalc. This is another feature that the IRS rarely if ever sees. To handle both conversion and recalculation would be maxing out the complexity of your plan as well as the risks of busting it and the increase in IRA scrutiny even if you are flawless. Sometimes, simpler is best.
2016-11-28 23:26, By: Alan S, IP: []

L5: Starting SEPP at 55I don’t think that he was planning to do ROTH CONVERSIONS of his SEPP 72-T IRA accounts. I think he was hopefully planning to do that with a portion of his or his wife’s IRA accounts that were kept outside of his SEPP 72-T universe.2016-11-28 23:41, By: dlzallestaxes, IP: []

L6: Starting SEPP at 55<>
That is correct. I will start with my wife’s TIRA to ROTH and probably leave the rest alone. It’s large enough that converting about 10k per year will be about all I can do to stay under the 25% tax bracket.
I will be doing the SEPP only on my TIRA leaving the ROTH’s to grow. As I grew older and my investments presumably continue to grow, they will get to the point that I will most likely go over the 86k annual withdrawal, putting me in the 25% tax bracket, which I hope to achieve. However, it would seem prudent to just withdraw from the TIRA’s up to 86k (or whatever the level is for that year) and any additional withdrawals will come from the ROTH’s so the max marginal tax is 15%. Thoughts?
This discussion has lead me to additional questions, thanks to the points made. If I start the SEPP with a calculation on Jan 5, 2017..can I wait until Jan 5 2018 before making the decision to recalculate on an annual basis? Or do I have to make that decision initially?
2016-11-29 14:01, By: MetalDecathlete, IP: []

L7: Starting SEPP at 55>>Or do I have to make that decision initially?Officially all assumptions (and recalculation is an assumption) need to be defined (and documented) at the point that the plan is initiated. We have a sample form at
2016-11-29 14:12, By: Gfw, IP: []

L7: Starting SEPP at 55Unfortunately, anyone’s “best laid plans” might be thrown for a gigantic loop depending upon the Tax Reform that will probably evolve in the next administration. Even if you were to look at Trump’s tax plans from the campaign, there is no assurance as to what any final changes will be. ( Even if Hillary had won, we would be in a similar quandry if Congress had remained Republican, or if the Democrats had won one or both houses of Congress.)
Also, your first distribution in January 2017 can be based on the highest balance going back as far as 6/30/2016. Normally we recommend using a month-end valuation because it is easier to document than selecting any specific date within some month during the preceding 6 months.2016-11-29 16:24, By: dlzallestaxes, IP: []

L8: Starting SEPP at 55Interesting about being able to back 6 months for the distribution amount. That allows a lot of flexibility.
You mentioned earlier that you could include both a ROTH and TIRA in the same calculation for SEPPS if you are going to do TIRA to ROTH conversions. After thinking about that, I could conceivably been in a position to do those conversions, depending on how long I exhaust my wife’s TIRA to ROTH conversion. Could happen after the 4th year of our SEPP distributions. Therefore, now I’m thinking about going ahead and doing that.
If so, do SEPP withdrawals have to come out of both the TIRA and ROTH? IOW’s can you total your ROTH and TIRA for the SEPP calculation and only pull money out of the TIRA?2016-12-01 21:46, By: MetalDecathlete, IP: []

L9: Starting SEPP at 55You can only go back 6 months for the account balance if it is a reasonable balance in relation to the current value of the IRA(s). There is no definition of “reasonable” but it would be very risky to use a balance more than 15% above the current balance, even if that balance was only a month earlier. Further, if you are going to adopt the recalculation method you must use the same date every year for determining the balance. Since you can’t know whether some year would produce an unreasonable variation from the current balance, you should probably not go back more than a month or two if you are going to recalculate every year.
If you convert some portion of your SEPP TIRA to a Roth IRA, it must be to a new Roth IRA with no prior balance. The Roth then becomes a part of the plan and you MUST include the Roth balance on the same date as the TIRA you use to calculate the annual SEPP distribution. Once you determine the amount of the SEPP distribution, you have a choice of how much to take from the two IRA types based on the amount of the tax bill you wish to incur from the SEPP distribution. But you are also free to take the entire distribution from just one of the accounts even though you must the balance of both of them to make the annual recalculation.
In an earlier post I indicated that excessive complexity in a SEPP plan invites IRS scrutiny, and when you recalculate there is a new chance for an inquiry each year. You also are making a new calculation every year which increases your chance of making an error in execution. Therefore, my statements on how to do this should not be construed as a recommendation. I don’t recommend either a conversion within the plan or recalculation, but certainly not BOTH in the same plan. There would only be a handful of people doing both for the entire US in a given year, perhaps you would be the only one. And the IRS agent that looks at your return would very likely never have seen either strategy before.2016-12-01 23:00, By: Alan S, IP: []

L10: Starting SEPP at 55<>
Thank you for the detailed reply Alan. I believe I now have a pretty good grasp of the complexities of the SEPP and can now move forward after I turn 55 in a few weeks.
As it is, I’m going to keep it simple without the TIRA to ROTH conversion. I’m going to think about the recalculation method over the next few weeks. I don’t necessarily fear the IRS as I’m confident I can make the calculations correct and as well as nothing to hide on my tax returns, which have been relatively simple all my life.The only concern I would have is if the IRS itself is unfair or corrupt, which is a discussion for another day. 🙂
Also, I’ll probably use the ending account balance of my TIRA from Oct 2016 as it will give me about what I want for annual expenses plus a lot of leeway.
Rik2016-12-02 20:42, By: MetalDecathlete, IP: []

L8: Starting SEPP at 55<>
Hard to say what could happen. Historically, the Republicans have added more flexibility with regards to retirement planning and being able to shelter $ from taxes. Before Trump was elected, he was generally considered a ‘wild card’ and an unknown with regards to policy issues. Many said he was a closet democrat. Now that we have had a look at some of his appointments and cabinet selections, it would appear he is even further to the right than any President since Reagan. With a Republican majority in congress, that would in my mind ensure tax friendly treatment of retirement accounts going forward. Of course, that is just my opinion. From my POV, never trust a politician regardless of which side of the isle.
So we all have to be nimble enough to change along with any new legislation.2016-12-01 21:53, By: MetalDecathlete, IP: []

L9: Starting SEPP at 55I would not include the ROTH IRA in the SEPP 72-T universe of IRA accounts. It would complicate the calculations because withdrawals from ROTH IRAs are tax free, while those from TIRA (and SEPP’s therefrom) are taxable.
Discuss your needs, and taxability issues, with your tax practitioner or financial planner.2016-12-01 23:27, By: dlzallestaxes, IP: []

L10: Starting SEPP at 55<>
Thank you for your helpdlzallestaxes.
Rik2016-12-02 20:44, By: MetalDecathlete, IP: []