final stub year paranoia
L1: final stub year paranoiaBeginning in January 2003 I began taking monthly amortization method 72(t) distributions of $4,273.44. As of January of this year, I have completed 5 years (60 months) of distributions, but I will not be 59 _ until September 30, 2008. From reading this forum, it seems that for 2008, I have 3 options: (1) take $0, (2) take the full $51,281.28 ($4,273.44 X 12), or (3) treat this as a stub year and take monthly distributions only through September ($4,273.44 X 9 or $38,460.96). Is this correct? I have continued to take monthly distributions through the first 4 months of 2008, but would like to stop after September, making my total distribution for 2008 less than for 2003-2007. I would hate to have come this far only to do something now that would bust my 72(t), so I wonder if one of the resident experts here would confirm that what I plan to do is OK.
Great website; wish I’d found it earlier. Thanks. 2008-04-11 13:54, By: Wayne, IP: [220.127.116.11]
L2: final stub year paranoiaHello Wayne:
You have got it exactly right.
2008-04-11 14:42, By: TheBadger, IP: [18.104.22.168]
L2: final stub year paranoiaI can see the viability of options 2 and 3 but why is option 1 viable? Don”t all SEPP owners HAVE to take payments until age 59.5 or 5 years, whichever is longer?
Not doubting you guys, just trying to clarify in my own mind how this works.
Ed2008-04-12 09:22, By: Ed_B, IP: [22.214.171.124]
L2: final stub year paranoiaI also would like to hear an explanation of how you can take $0 in the last year. Makes no sense to me at the moment.2008-04-13 06:14, By: Mikex, IP: [126.96.36.199]
L2: final stub year paranoiaWayne can take zero in 2008 for a couple of reasons:
1. He has already completed 5 or more full years of distributions in 2003 thru 2007.
2. He is “waiting out” so to speak approx 270 days in 2008 until he attains age 59 1/2.
3. IRC 72(t)(4) causes the 10% surtax to be applied when a “modifcation” occurs. A modification is defined by Arnold v. Commissioner as actually either of two events: a) not taking any distribution in a full calendar year; or b) and the more likely, taking a distribution in a calendar year that is not a SEPP distribution; the implication being an extra distribution.
In Wayne”s case he could simply say to himself that he will wait until 10/1/08 to make his SEPP distribution making no distribution for the period 1/1/08 to 09/30/08. On 10/1/08 he suddenly
Conversely, if Wayne elects to make a distibution during the period 1/1/06 to 9/30/08, it must be a SEPP distribution and a SEPP distribution only.
PLease note that if Wayne had started his SEPP plan one year later in January, 2004; then as of 1/1/08 he would only have completed 4 full years of distributions and I would therefore reverse everything above and say that distributions totaling the full annual SEPPamount would be required iin 2008 to get to the full 5 years.
Thus, the situation above really only applies when a taxpayer has already completed 5 or more fulll years of distributions and is waiting out an ending stub year (year 6 or greater) to attain age 59 1/2.
2008-04-13 08:40, By: TheBadger, IP: [188.8.131.52]
L3: final stub year paranoiaJust to clarify;
IF I”m in 60th year AND have 5 or more SEPP years I don”t have to take any 72tdistributions?
If I”m 59 1/2 (for example) on July 1st, I don”t have to take 50% of my SEPP distribution for this year.
Any distribution after July 1st is considered a “regular” IRA distribution.
IF I want to reduce my monthly SEPP distributions starting in my 60th yearcan I starton Jan 1stto any amount I want? I guess my 1099R code 1(2) will show less than 50% of my required distribution BUT this is OK?
Thanks in advance. This appearsas a “new” option for me to consider that I was unaware of.2008-04-19 10:53, By: RICH, IP: [184.108.40.206]
L2: final stub year paranoiaI dunno, Badger. I don”t know this stuff nearly as well as you do but this still looks like slight of hand to me. I always thought that you HAD to take regular calculated SEPPdistributions for at least 5 years AND until age 59.5. I haven”t seen a thing in the IRS rules that legitimize “waiting out”. That looks like a modification and a busted SEPP to me. Oh, well. I guess that”s why you get the big bucks. 😉
Ed2008-04-13 20:55, By: Ed_B, IP: [220.127.116.11]
L2: final stub year paranoiaIn Wayne”s case he could simply say to himself that he will wait until 10/1/08 to make his SEPP distribution making no distribution for the period 1/1/08 to 09/30/08. On 10/1/08 he suddenly
My head hurts – who dreams up these rules? … going for the Tylenol …2008-04-15 07:27, By: Mikex, IP: [18.104.22.168]
L2: final stub year paranoiaWayne:
Stick with TheBadger”s explanation. He”s right. I agree completely with hisdescription and logic.
Jim2008-04-15 08:51, By: Jim, IP: [22.214.171.124]
L2: final stub year paranoiaThanks Badger and Jim!
This “feature” will reallyhelp me since I willturn 59.5 in my 6th full SEPP year, Will be nice to have these distribution options available.2008-04-15 12:09, By: Bob_85364, IP: [126.96.36.199]