DIY SEPP Plan – sanity check requested
L1: DIY SEPP Plan – sanity check requestedGreat forum! Glad I discovered y’all!
I am close to pulling the trigger on a SEPP withdrawal plan for my a 401K through my former employee. I would appreciate any comments regarding my plan (which is based on my current understanding of the rules):
* Age: 55 (DOB 4/16/62)
* “Rule of 55” does not apply (left work at 52).
* Using annuitized method at September FMT rate of 2.33%, single life expectancy.
* How do I document value of 401K at time of calculation? Does IRS care (unless they audit?)
* Full year withdrawal in 2017. (Age 55)
* Full year withdrawal in January 2018. (age 56)
* Full year withdrawal in 2019 (age 57), 2020 (age 58) and 2021 (age 59 – 59 1/2 in October, 2021), respectively. That should complete obligation, yes?
* 2022 and beyond: withdraw at my own discretion; no more SEPP reporting.
* Broker sends 1099-R. Broker: Fidelity (will they code 1099-R correctly? Any first hand experiences?)
* File Form 5329, line 2 and use “2” as the coding for the withdrawal.
* I report the income somewhere on my 1040 (haven’t sussed that out entirely; expect it will be obvious).
* If I follow this plan, IRS is happy clams?
* Does it make any difference if I use a 401k or an IRA? Does it make any sense to roll the 401K into IRA before starting SEPP?
* I have a second IRA (with Vanguard). Can I setup a second SEPP with them following the same pattern? Not sure I need it, but I would like to know I have the option.
Thanks for your patience and advice.2017-10-05 18:45, By: KentD, IP: [184.108.40.206]
L2: DIY SEPP Plan – sanity check requestedMost 401-K plans have a limited number of investment options. IRA’s have an unlimited number of investment options.
401-K’s usually have an annual fee. IRA’s may have an annual fee, a managed fee, or no fee.
You can have a SEPP 72-T for your 401-K, but not for your IRA; or vice versa. Or you can roll over your 401-K into your IRA. You can roll over your 401-K into a new different IRA, and set up a SEPP 72-T for each IRA.
We usually recommend leaving some money in an IRA that is not part of any SEPP 72-T Universe, just in case you need emergency money before the SEPP 72-T terminates.
If you use a 401-K SEPP 72-T, then you can choose the highest balance in the last few months (up to 6). If you roll it over to an IRA, you can only use balances it as had in the IRA, and not previous balances in the 401-K. To minimize complexities, I would suggest rolling the 401-K over to a separate IRA, unless it was significantly higher at some point recently in the 401-K, provided you are happy with the investment options in the 401-K.
2017-10-05 19:00, By: dlzallestaxes, IP: [220.127.116.11]
L2: DIY SEPP Plan – sanity check requestedWell I’m not as experienced as the folks who run this board, but I can answer a few of these based on previous answers.
SEPPs can be set up on a per account basis. Document the opening balance through a printout of your statement that you keep with your plan documentation.
No one can speak for the IRS. They may request further information through a mail audit or other audit. Keep you documentation and keep is simple as you can. You own this plan and following the rules…No one else. Keep good documentation for 7 years after the end of the plan.
General consensus is to roll into an IRA vs. 401K. If you don’t qualify for the rule of 55, you have more control over your distribution through an IRA.
No one can predict how Vanguard, Fidelity, Schwab, or any other broker will code the 1099 for SEPPs. Most likely, it’ll be coded as an early withdrawl and you’ll have to file the exception form with the IRS.
2017-10-05 19:11, By: SOS, IP: [18.104.22.168]