L1: Fidelity 72(t)I am a 57 year old unemployed former airline employee that wants to start a 72(t) this month. I have followed this Forum for 5 years or so and I am finally ready to pull the trigger.
I have appoximately 615K at Fidelityin a IRA. I recently visited my local Fidelity Investment Center and came away with the feeling that I would be better served to handle my 72(t) myself. They said that I had to take monthly distributions and I could not do a prorated distribution in the first year. Seems that these are Fidelity’s limitations, not the tax code.
I would prefer to take the first distribution mid Aug and a prorated first year is preferable.
Do I have to submit my SEPP to them in order for them to regonize the plan and avoid backup withholding? I don’t anticipate any Federal tax obligation for 2013.
Date of birth 10/25/1956, spouse 5/17/1963.
Thanks for any words of wisdom. I know that I can do anything I want with my IRA funds in 2 and a half years, but have a cash crunch now while we are in the process of downsizing.
2013-08-12 16:15, By: 72(t)curious, IP: [188.8.131.52]
L2: Fidelity 72(t)I do not understand why people are so reluctant to rollover/transfer their IRA accounts to another broker or mutual fund if they want something different from what their present one offers.
Similarly, why do people want to continue to deal with companies or people who do not understand the regulations ?
Just transfer your IRA to Vanguard or another firm who does things the way that you want to and which are within the regulations.
Further, I would separate into 2 or more IRA accounts, so that you do not have to tie up all of your IRA for FIVE YEARS. Your statement that “I know that I can do anything I want with my IRA funds in 2 and a half years” is completely WRONG, so you obviously have not understood what you have been reading here for the past 5 years or so. SEPP 72-T distributions are REQUIRED TO BE TAKEN FOR THE longer of 5 years or to age 59 1/2.
They cannot stop at 59 1/2 unless you were less than 54 1/2 when you take the first distribution !
How much do you NEED until you are 59 1/2 ? If there is no other resource, consider what the cost would be of the extra 10% by just taking what you need for the next 2 1/2 years, rather than be tied up for 5 years. Also, by having multiple SEPP accounts you may be able to “play the numbers game” to get what you need from now thru 12/31/2015, and then have clear sailing. A qualified financial planner or accountant might be able to work this out for you.2013-08-12 16:37, By: dlzallestaxes, IP: [184.108.40.206]
L2: Fidelity 72(t)I think you got a new or inexperienced rep at the local Fidelity office. Try again and this time ask for someone more experienced with specific knowledge about 72(t) plans. If you have been reviewing this board for 5 years then you know more than the Fidelity rep you spoke with.
Consider splitting your large IRA into3 SEPARATE IRA’S with different account numbers. You can do this at Fidelity.Keep one account out of your SEPP Universe to use for “penalty” withdrawals so you don’t bust the entire, large plan.
Starting distributions by “mid August” is probably not practical since “mid August” is Thursday and I don’t see you having time to process the paperwork. I would re-think your start date.
Whenever you start your plan … take the first distribution … you can take an entire year or start monthly and prorate for this year. It’s your choice.
Do your calculations and document everything. Then fill out Fidelity’s distribution forms and tell them how much and when to send the distributions, withholding taxes as necessary. They will code the distribution and “Code 1” for early distribution and no known exception. Then you file IRS Form 5329 with your tax return each year to claim the exception from the 10% penalty. If you use one of the tax programs or have your taxes prepared professionally, the Form 5329 will / should come in automatically.
I’ll echo DLZ’s comment that if you can survive financially until your age 59.5 on penalty withdrawals or some other funding, you would probably be better off than starting a SEPP Plan with that large IRA.
Jim F2013-08-12 17:40, By: Jim F, IP: [220.127.116.11]
L3: Fidelity 72(t)Thank you both for your input, I appreciate it. I can put it off at least another year by tapping my Roth IRA. After that I can consider a withdrawal and pay the 10 % penalty on any further withdrawal from one of my Traditional IRA’s.
My first post was unclear, I know that once I start the SEPP it has to run its full 5 year course. I meant that If I did not take distributions from a 72(t) plan I only had about 2.5 years to go before I could do anything I wanted with my IRA(s)
Thanks again. You have given me some simple options to consider.
2013-08-12 22:03, By: 72(t)curious, IP: [18.104.22.168]
L4: Fidelity 72(t)Once you get past your immediate cash flow needs, or maybe after you are 59 1/2, you can consider doing ROTH CONVERSIONS if your needs change, so long as you remembering that you have to have non-retirement money to pay the taxes for the conversion.
There is a lot that can be done with RETIREMENT PLANNING after 59 1/2, including when to start or defer Social security Benefits.2013-08-13 03:10, By: dlzallestaxes, IP: [22.214.171.124]
L5: Fidelity 72(t) I agree with Jim, I’ve been with Fidelity now for 6 years, and my Sepp is almost done know. When I transferred my 2 IRA’s to Fidelity to start my Sepp, I demanded that I get a person that knew Sepp’s. I had no problems with Fidelity so far. It doesn’t make which broker you go to, they all have unqualified people who will try to help you, and that goes for financial advisiors also.2013-08-13 13:02, By: Chris, IP: [126.96.36.199]
L6: Fidelity 72(t)I ‘ve had a brokerage account with Fidelity since 1988 or so and have been happy with their service overall. To be fair the representative I met with told me he didn’t have much expertise with SEPP planning. We had a conference call set up and it was the rep on the other end of the call that told me the limitations of using Fidelity to administer the plan.
I’m glad your SEPP worked out well for you. Thanks for all of your comments.2013-08-13 14:59, By: 72(t)curious, IP: [188.8.131.52]
L7: Fidelity 72(t)If you don’t start the SEPP, you should split the Roth, and IRA distributions over the two years to reduce tax liability, and penalties.2013-08-13 20:09, By: Scott, IP: [184.108.40.206]
L8: Fidelity 72(t)Scott, Can you elaborate on this strategy?
Thanks2013-08-14 00:21, By: 72(t)curious, IP: [220.127.116.11]
L9: Fidelity 72(t)IE: Let’s say you need $10,000 more a year? Rather than take $10,000 from the Roth one year, and 10 from the IRA the next. Take $5000 from each which will keep your taxable income down, and equal out the penalty. Won’t be a grand savings, but it will be a savings.2013-08-14 01:25, By: Scott, IP: [18.104.22.168]
L10: Fidelity 72(t)Gotcha, Thanks for the tip! I will consult with my tax professional before executing any of this. She was against the SEPP 5 years ago, but appreciates the fact that I was able to hang in there and not resort to the 72(t). I talked to her recently and she feels it would be better to use the Roth(if I have to) and not resort to being locked in for 5 years.
Thanks for all the help 🙂
2013-08-14 03:37, By: 72(t)curious, IP: [22.214.171.124]