First Steps

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L1: First StepsGreetings all,

I am preparing to SEPP a portion of my IRA in 2013. I will be 56 next year. I am just getting up to speed on this whole process.I have $600,000 in my IRA. I recently moved $500,000 of that out of my S&P 500 index fund and into CD’s, all through Fidelity. I want to 72(t) SEPP the $500,000, which according to the calculators will provide income of $17K to $20K for 5 years depending on which method I chose. I believe my first step should be to open a new IRA account at Fidelity to isolate the $500,000 from the remainder of my IRA. Even if I change my mind, this first step will cause no harm. Can you comment on this first step? Thanks for your thoughts.
2012-10-15 11:38, By: retiree_wannabe, IP: []

L2: First StepsYour fist step is right on – move the $500,000 to a new and separate IRA. If you havn’t already, click on the “Planning Pointer” link above for some very helpful information.2012-10-15 12:17, By: Gfw, IP: []

L3: First StepsYou don’t have to reduce risk just because you are undertaking a SEPP, but perhaps you chose to do that for other reasons.
If the CDs are brokered CDs as I suspect, be sure to plan for enough liquidity to meet your 72t withdrawal requirement. It’s only around 4% per year, so you would handle the liquidity in similar fashion as you would for an RMD of the same amount. Brokered CDs must be sold on the secondary market and the spread and expenses in doing so might be costly in relation to the puny yield you will get on these CDs.
Since your SEPP distributions can occur at anytime during a calendar year, with a little planning you can take withdrawals at the time your laddered CDs mature and you won’t have to sell any of them. Brokered CDs have been prone to FDIC liquidation in the past, and I have had several of these, but the FDIC insurance was back in my IRA account within 3 weeks of FDIC takeover.
2012-10-15 18:53, By: Alan S, IP: []

L4: First StepsAlan, thanks for your comments, here and all over this forum. I’m feeling bearish in the short term and it seems like a good time to take profits, although I’m happy to see the bulls are still running and what I have left in the market continues to grow.
I’m new to Fidelity brokered CDs. They are very convenient. Sadly the rates are lower than going directly through the issuer (which are already pitiful). They are FDIC insured even though many are from overseas banks. Interesting that you’ve experienced a few that were FDIC liquidated, glad to know the system works. The brokered CDs will work nicely keeping just enough cash handy for my annual SEPP withdrawl.2012-10-16 09:30, By: retiree_wannabe, IP: []

L3: First StepsThanks very much, I sure do appreciate all the technology and expertise here.2012-10-15 23:58, By: retiree_wannabe, IP: []