distributions and the 10% penalty

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L1: distributions and the 10% penaltyHere’s the scenario: the client, lets call him Pete, has ~$450,000 in retirement funds in an IRA. Pete is 55 and would like to retire.

The distributions available on $450,000 are ~$27,000 per year. Pete feels he needs ~$33,000 to live comfortably.
The proposed solution that Pete has asked for guidance on is: create two (2) funds, Fund A with ~$400,000 with the balance of $50,000 going to Fund B. Pete would then take maximum distributions available from Fund A and would supplement that amount using Fund B.

The question is whether or not the distributions from Fund B “stand alone”, meaning that they would not cause the Fund A distributions to be subject to the 10% penalty as long as the Fund A distributions conform to the SEPP rules.
Any guidance is appreciated.2005-01-06 18:30, By: stewy, IP: [12.33.21.74]

L2: distributions and the 10% penaltyHello stewy:
The SEPP plan on account A (and make sure they are separate accounts) stands by itself and is not subject to the 10% surtax. Obviously any withdrawals from account B would be subject to the 10% surtax.
TheBadger
wjstecker@wispertel.net
2005-01-06 18:36, By: TheBadger, IP: [66.250.23.21]

L2: distributions and the 10% penaltyGood morning Stewy:
I concur with TheBadger that your methodology is sound. However, if you are planning to use the same custodian for both accounts, may I suggest that you check with them and be sure they are in agreement with your plans. I have found custodians who can do this with no problems, while others disagree and insist on considering all accounts with them as one when it comes to distributions. I think their problem is (1) lack ofbasic understanding of how the system works and (2) their computer system isn’t set up to handle multiple accounts like you propose.
Good luck.
Jim2005-01-07 08:11, By: Jim, IP: [68.1.157.228]