Finalizing my plan for Sept retirement

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L1: Finalizing my plan for Sept retirement
DOB 4/2/1963, BENF 6/17/1963. Qualified plan balance 2,300,000. Hello, great site and thanks to all who help. Retirement date will be Sept 13, 2018. My funds are in a qualified plan (Profit Sharing Trust) with a privately owned company. They will not allow partial distributions. Please give opinions on my plan…_.all of my balance will be rolled into several IRA’s with 2,000,000 being isolated from the rest for the Sepp. Is my understanding correct that I can use either of the prior two months interest rates in my calculations? I am attempting to maximize withdrawls so in this case would prefer the 3.45 rate. Am I also correct that my first distribution sometime in 10/18 can be my choice of a full yr distribution ($108,406.96) or prorated amount for the remaining months of 2018? My normal income is way down for 2018 as I have been on non-pay status with my employer taking care of my Dad. Would prefer full yr distribution if possible. I will be using the services of someone who is certified as both a financial planner and CPA whom I trust but I wish to be fully knowledgeable and involved. Thanks for any input.
2018-08-04 15:09, By: Roop, IP: []

L2: Finalizing my plan for Sept retirement
The maximum rate you can use is the highest of the August or Sept rates since your initial distribution will be in October. You cannot use the July rate, and the Sept rate will not be released for a few more weeks. Since the August rate is 3.37, you do know at this time that you would not be required to use a rate less than that regardless of what the Sept rate is.
You should determine if there is any NUA potential if you hold appreciated employer shares. NUA can be used with non publicly traded shares if your company has issued such shares and contributed them to your plan. The age 55 separation exception that you qualify for will not be useful for you because of the lump sum requirement that will spike your taxable income this year.
If the above does not apply, then suggest doing a direct rollover of the entire plan balance to a rollover IRA. When that is done, do a non reportable direct transfer of the 2mm balance you wish to use for your SEPP to another IRA account. That will be your initial balance for purposes of the SEPP calculation. The initial IRA will have around 300k in it and can be used for emergency needs subject to penalty.
For 2018 you can either distribute the full annual calculation or 25% of it (3 months). If you choose the full annual, you will also withdraw that much in 2019-2022. Your plan will be a 5 year plan meaning that you will NOT take SEPP distribution in 2023 prior to when the plan ends in October. If you prefer it, you could take out 3 months this year and 9 months in 2023 to get to your required total of 60 months.
2018-08-04 15:43, By: Alan S, IP: []

L3: Finalizing my plan for Sept retirement
1. Congratulations on accumulating that balance in your retirement account.
2. Alan’s recommendations are “spot on”, as usual.
3. As far as the NUA possibility, the amount that it would add is the “cost basis” of the company shares in your account. This is important if there has been an exponential growth in the company.This is important because you said that you have been on non-paid leave. For example, if it were like any of the “SNAP” companies, or new-tech, or pharma, and the cost basis was $ 100,000 that is now worth $ 2,300.000, then the taxable portion of the lump-sum distribution would only be $ 100,000 in 2018. You have to get this figure from your company, or plan administrator.
4. One word of caution — The term “rollover” is a general term, but the IRS differentiates between that and “transfer”. We always recommend that you do an “electronic TRUSTEE-TO-TRUSTEE TRANSFER”. ( A “rollover” is one in which the check is made out to you personally, and then you “roll it over” into an IRA.)
5. The $ 300,000 separate IRA for emergency purposes can be used between now and the later of 5 years from your first distribution and 59 1/2, or to set up a 2nd (or more) SEPP 72-T to avoid the 10% penalty on those distributions.
2018-08-04 16:42, By: dlzallestaxes, IP: []

L4: Finalizing my plan for Sept retirement
Thank you Alan for pointing out my interest rate error for an October distribution. I will verify but am 99% sure that there is no company stock involved. It is privately owned by one family. I have also seen a copy of the distribution form I will use and it has multiple ways to disperse funds. There is a line for amount sent to me (if desired) and other lines to distribute funds directly to other IRA accounts. I will also verify this, but I assume those options would be the Trustee to Trustee transfers that you spoke about. These are all vital points that I would easily miss without you guys. Thanks a bunch.
2018-08-04 17:22, By: Roop, IP: []

L3: Finalizing my plan for Sept retirement
Question on your last paragraph and 2023. Could I still continue to take 2023 distributions monthly until after 10/11/23 which would be my first modification date without busting the plan?
2018-08-04 18:26, By: Roop, IP: []

L4: Finalizing my plan for Sept retirement
If you are proposing a total of 69 or 70 months worth of distributions prior to your modification date, it is much safer to avoid that and stick with 60.
This site’s founder and operator, gfw is firm that doing more than 60 should bust your plan, at least if the IRS kept track and realized that you did this. I am not so sure, but the issue comes down to interpreting what the IRS meant with their statements with the Arnold v Commissioner case, and if they intended that ANY extra distributions in a 5 year plan are considered NOT to be SEPP distributions. I am sure many people have taken these extra distributions with no problem, but in those cases it is possible that the IRS did not check back to year one to see that the taxpayer took out a full annual in year one and had already completed 60 months worth.
In the 1998 Tax court case, Robert Arnold distributed in a single year (1993)prior to the year of his mod date (1994) MORE than his SEPP calculation, so his plan would have been busted anyway. Currently, the IRS makes this statement on their site regarding SEPP plans:
“If you begin taking payments at age 56 on 12/1/2006, you may not take a different distribution or alter the amount of the payment until 12/1/2011, even though your fifth payment was taken on 12/1/2010.” However, this still does not clarify what happens if you take a 6th distribution of the full annual in 2011 that did not alter the amount of the payment and was not a different distribution. In this context, it appears that if you took a full distribution in 2023 before the mod date, it would be safer than taking a pro rated distribution since you do not intend to pro rate year 1. But the bottom line is that there is still some uncertainty created by taking out more than 60 months in a 5 year plan, so why take the chance?
2018-08-05 00:39, By: Alan S, IP: []