final stub year paranoia

You are here:
< Back

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: [68.44.111.154]

L2: final stub year paranoiaHello Wayne:
You have got it exactly right.
TheBadger
[email protected]
2008-04-11 14:42, By: TheBadger, IP: [72.42.66.180]

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: [67.170.159.37]

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: [71.90.162.26]

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 realizes that his SEPP plan has ended and thererfore no SEPP distribution is required and he can further make whatever distribution he so chooses.
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.
TheBadger
[email protected]

2008-04-13 08:40, By: TheBadger, IP: [72.42.66.180]

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: [71.243.5.200]

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: [67.170.159.37]

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 realizes that his SEPP plan has ended and thererfore no SEPP distribution is required and he can further make whatever distribution he so chooses.
My head hurts – who dreams up these rules? … going for the Tylenol …2008-04-15 07:27, By: Mikex, IP: [192.91.171.36]

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: [24.252.195.14]

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: [76.178.79.176]