follow up ?

L1: follow up ? You responded to my 72t startup question yesterday. I wanted to start 72t this month. (age 54, dob 10/1950). My FA said I had to take 5 monthly withdrawals thru Dec and also in Dec take a 7-mo lump sum. Then from 1/2006 thru 12/2009 take monthly. Butat the end of this 5 year period, I will be 59, 2 mos. Wouldn’t that be a 72t bust? Wouldn’t I be required to take 4 more months until Apr 2010 when I’m 59 1/2? Yesterday you stated I could take monthly from 8/05 thru 8/2010 at which time I’ll be 59, 10 mos and ok.
thanks again2005-08-02 10:10, By: Judy, IP: [24.147.108.69]

L2: follow up ? Hi Judy:
First a small ‘house keeping’ item. If you have follow-up questions simply post a new message to your original string of questions and replies. That way we can see what has been asked and answered on your previoius post.
Second, and this is to the heart of your questions, may I suggest that your FA buy Bill Stecker’s book which is a practical guide to 72(t) distributions found on the home page of this site, big blue button on the right side. But since your FA works for a large firm, it probably won’t do him / her any good to become educated to the real facts about this subject. So I suggest that you spend the small fee to buy Bill’s book and educate yourself.
Third, from what you just wrote on this message, your FA is just wrong. Don’t know any other way to put it. And his ‘house’ probably won’t let you vary from what their ‘tax office’ is saying, eventhough they seem wrong. So you may be looking for a new FA firm to work with that knows and understands the rules.
If you take your first distribution in August, 2005, then the 5-year time will run into August, 2010. Use the ‘Last Distribution Date Calculator’ to get the exact date after you have taken the first distribution. Since your age 59 1/2 will occur before the 5-year time period has expired, the 5-year date will control the end of your SEPP requirements.
You may take monthly distributions throughout the entire SEPP distribution period without regard to entering and exiting and not taking the same dollar amount for 2005 and 2010. This annoyance has plagued SEPP for years, but I understand something happened, maybe a series of PLRs, that cleared up the confusion.
At this point I hope TheBadger will weigh in with some more information and clarifications.
Good luck.
Jim2005-08-02 10:41, By: Jim, IP: [70.184.1.35]

L2: follow up ? Thank you, Jim for your quick response. I wanted to be clear on this issue before speaking to the FA again.2005-08-02 10:54, By: Judy, IP: [24.147.108.69]

L2: follow up ? Hello Judy (and Jim):
I think I have the fact set correct but I am not 100% sure; however, the essence of the question seems to be what to do in the 6th year of a SEPP plan when the taxpayer is attaining ahe 59 1/2 in that year. If so, there are actually several answers:
1. If 5 full years of distributions have already been taken; then the taxpayer can elect to take no distribution in the 6th year waiting to attain age 59 1/2. The secret here is not to take a distribution in the 6th year, before attaining age 59 1/2 , that is not part of the SEPP plan. Similarly, the taxpayer can take a SEPP distribution in the 6th year if they so choose.
2. If less that a full 5 years of distributions have been taken; e.g. only 6 months worth in year 1 and the full annual amount in years 2,3,4 & 5; then the taxpayer is required to take a 6 months worth of distribution in the 6th year in order to complete the 5 year rule.
TheBadger
wjstecker@wispertel.net
2005-08-02 15:50, By: TheBadger, IP: [66.250.23.21]

L2: follow up ? Judy:
I ran the calculator for an example. Since you didn’t specify your exact birthday, I made that today, so Happy Birthday! I also assumed a start date 08/15/05 (tax day) for your first SEPP distribution. Below is the result of the calculation which I copied and pasted into this reply.
Attained Age on 1st Payment Date 55 5-Year Period Ends 8/14/2010 Date Age 59.5 4/2/2010 First Payment Modifiaton Date 8/15/2010 Hope this helps.
Jim2005-08-02 17:03, By: Jim, IP: [70.184.1.35]

L2: follow up ? Thank you Jim and Badger for your responses. But I am unclear with Badger’s #1 example. As my dob is 10/9/50, and if I start taking distributions this month (age 54, 10 mos) with a full year’s distribution for 05 thru 09, by Dec ’09,I will be 59, 2 months. His example shows I will not need to meet the 59 1/2 age requirement and not have to take an additional 4 mos of distributions Jan thru Apr/2010 when I attain age 59 1/2). I thought to meet the 72t requirement, it was 5 yrs or until 59 1/2 whichever was longer. He stated I would have the option of taking or not taking the first 4 months of 2010. Have I misinterpreted this example?
I understand example #2 although my financial firm may not allow it.
Thank you both, Judy2005-08-04 06:52, By: Judy, IP: [24.147.108.69]

L2: follow up ? Hello Judy:
Actualy, you interpreted my example #1 exactly correctly.
Think of the tests to satisfy the SEPP rules as follows:
1. Did you take at least 5 full years of distributions & did you take them at least once per year — YES.
2. Did you take any extra distributions during the SEPP period; 8/05 through 04/10 that would cause a modification & therefore invalidate the plan — NO.
Therefore, you successfully completed the plan. I understand the desire to take a distribution in the SPring of 2010; but, it is not necessary. Another way to think about it is that, irrespective of the actual distribution frequency you choose, ou plan is really an annual plan & you are entitled to take your annual distribution on ANY day of the calendar year. Come 2010, you simply have decided to take a distribution after your 59 1/2 birthday which means it can be any amount you so choose.
Also a comment about custodian/trustees. Every day I hear comments like: “My trustee says I must do X” or “My trustee will not allow it”. Pardon me: B*** S***! Your trustee is your sub-contractor. It’s job is to do precisely what you tell it to do; nothing more, nothing less. Next time you get this type of response sinply inform the trustee that you will instruct them in writing what to do & if they refuse they will have commited a breach of fiduciary duty & you will go find a new trustee.
TheBadger
wjstecker@wispertel.net
2005-08-04 08:03, By: TheBadger, IP: [66.250.23.21]

L2: follow up ? Badger,
Thanks so much.I feel a lot more confident for when Italk to mysub-contractor!
Judy2005-08-04 08:34, By: Judy, IP: [24.147.108.69]

L2: follow up ? Bill:
In item 2 of your response you stated that the SEPP period was 08/05 through 04/10. However, shouldn’t the SEPP period be 08/05 through 08/10, the end of 5 years of distributions and not her age 59 1/2 date of 04/10? In my example calculation the first modification date is 08/15/2010 and not a date in April.
By the way Judy, while taking 72(t) distributions and before age 59 1/2you should get IRS Form-1099s indicating the exception to early withdrawal. For distributions after you reach age 59 1/2 your 1099 will indicate “Normal Distributions.” This means you might get two Form 1099s in one year from the same custodian but with amounts in two different locations.
Jim2005-08-04 08:38, By: Jim, IP: [70.184.1.35]

L2: follow up ? Jim:
You are correct. I had myself in year 6; not in year 5.
TheBadger
2005-08-04 08:40, By: TheBadger, IP: [66.250.23.21]