For Discussion… What plan would I design if I were to start a SEPP today?

L1: For Discussion… What plan would I design if I were to start a SEPP today?
While I’m over age 59.5 so I don’t need a SEPP, after posting the October 120% mid-term rate of 2.07%, I started thinking about the rate – interest rates are at an almost all time low and show little promise of rising anytime soon. And then I started thinking about “What plan would I design if I were to start a SEPP today? “. Step 1… Prior to the first distribution I would move all of my SEPP funds to a brokerage account to give me maximum flexibility in determining where I would be placing the SEPP investments. I also want to avoid any possible conflicts with partial transfers should I want to move part of the assets at a future date. For example, I have a brokerage account at Vanguard. The only Vanguard investment that I have is their money market account. With this account I can purchase mutual funds, stocks, EFTs, CDs, etc – all under one IRA account number, and not just from Vanguard, but also through other investment firms. Step 2… Starting the plan today (09/2010), I would use the the July interest rate of 2.83% and the IRA balance as of 08/31/2010. Step 3… If I didn’t want to be locked into the current rates for an extended period of time, I would design the plan using annual recalculation and the amortization method. I would further define the recalculation date as 01/15 of each year using the account balance as of the previous 12/31 and my age as of 12/31 following the recalculation date. The interest rate used at recalculation would be the higher of the 120% mid-term rate for either November or December preceding the recalculation date of 01/15. What risks would I be taking?

The re-calculation by itself should not cause an issue. There have been PLRs since 2002-62 that have given the Ok to annual re-calculation.
There should be no risk of creating a partial transfer if I change investments and long as I don’t add any new IRA accounts.
There is an interest rate risk. As low as they are now, they could go lower. But as low as they are now, they may also go higher.
There are calculations that must be done annually – forget to make and implement them, and the plan is busted. Perform them and implement them and there should be no problem. Not really much different than using the Minimum Distribution method where calculations are also done annually.

Any thoughts or comments? 2010-09-23 12:34, By: Gfw, IP: [24.148.10.164]

L2: For Discussion… What plan would I design if I were to start a SEPP today?From what I have seen from the majority of postings, I would state it differently :
1. Prepare a projection of your cash flow needs, and tax situation,for the next 5 years, or until 59 1/2 if you are under 54 1/2.
2. Project your tax situation and cash flow needsfor the current year in order to determine when you should start, and whether to take a prorated amount or a full 12-month annual distribution regardless in which month you start.
3. If you have a 401-k or 403-b, and will be 55 or older before 12/31 of this year, and have already, or plan to, “separate from service” from that employer before 12/31, then you may not need to set up a SEPP 72-T if your employer’s plan allows voluntarily, irregular distributions.
4. If there is employer stock in your 401-k, and you are leaving the company, then look into the special tax provisions for NUA ( NET UNREALIZED APPRECIATION employers’ shares).
5. If you have difficulty in doing # 1 or #2, or understanding # 3 or # 4, meet with a tax or financial planning advisor. His fees and services will be well worth your while.
6. Once you determine your needs, then use the “reverse calculator” on this website to determine the IRA balances that you need to use. Then make sure that you move any “excess” to another account that would not be part of your “SEPP UNIVERSE”, and would be available for one or more additional SEPP plans in the future, or for emergency funds that would be subject to the 10% penalty, but would not retroactively bust your plan.
7. I suggest starting with the same annual distribution plan, but be aware that if circumstances change, then you can do a one-timechange to the Minimum Distribution method at that time if you then need less to be distributed thruout the remaining term of your SEPP 72-T plan.
8. There has been a case that allowed additional distributions underone of the other exceptions to the 10% penalty. We are not sure if this can be expanded to include other exceptions to allow additional distributions during the term of your plan. By the time that you might need this, the situation might become more definitive.2010-09-23 15:05, By: dlzallestaxes, IP: [72.78.110.86]

L3: For Discussion… What plan would I design if I were to start a SEPP today?The distinction between the two posts is that gfw started at the point where the pre planning has already been done and focuses on execution of the SEPP.
DLZ started at the beginning of the process where the taxpayer analyses other options that could possibly avoid exposure to the risks and restrictions of a SEPP plan. Excellent suggestions, but Point #7 should show the switch is the one time switch to the MD method, not a switch to a recalculation of the original components. A recalculation plan must be initiated as such.2010-09-23 21:35, By: Alan S., IP: [24.116.165.60]

L4: For Discussion… What plan would I design if I were to start a SEPP today?Simple comment … very well thoughtout fordeveloping a successful SEPP Plan.
Jim2010-09-24 16:44, By: Jim, IP: [70.167.81.119]