full distribution in first year?
L1: full distribution in first year?I started a SEPP this year in August at age 55 and am trying to figure out if I should take a full year’s distribution this year or not. We don’t need the money right now and really don’t see needing it until after the SEPP can be retired in 5 years.
What would be the advantages of taking the full distribution? Would I be able to retire the SEPP when I am 59 and a half in February of 2015 instead of waiting until AUgust 2015?
Thanks!2010-11-09 14:47, By: Corporate Orphan, IP: [184.108.40.206]
L2: full distribution in first year?The SEPP must run for a complete 5 years AND your reaching age 59 1/2 … no exceptions. Taking a full year’s distribution amount vs. partial year in the first year has no effect on the 5 years and age 59 1/2 requirement.
If you don’t need the funds then don’t take them. This is where good financial planning of your income needs comes into play.
Jim2010-11-09 15:03, By: Jim, IP: [220.127.116.11]
L3: full distribution in first year?Your SEPP modification date is an established date as Jim indicated, based on the longer of 5 years or age 59.5. Any distributions taken in the SEPP period must qualify as SEPP distributions.
However, there is a choice as you indicated. If you take a full annual distribution in 2010, you do not have to take any distribution in 2015, but you still have the option to take 2015 distributions prior to the modification date. Those would consist of either a full annual distribution or a pro rated distribution of 7 months. That’s 3 choices for 2015 prior to August.
Taking the full annual this year will provide a cushion against busting your SEPP by falling short before it ends, however it does not mean that you will have to take more out in total, since you can stop distributions at the end of 2014. You must take out at least 60 months, and your choice is to take the (extra)7 months up front or take that 7 months in 2015.I lean toward the up front amount unless you are extremely positive that you will have enough over the 5 year term of the plan.2010-11-09 22:17, By: Alan S., IP: [18.104.22.168]
L4: full distribution in first year?I do not understand. If you “do not need the money now, nor until after you are 59 1/2″, then why did you start a SEPP 72-T ?
Your tax bracket/situation for 2010 should dictate whether to take 5/12 or a full annual distribution in 2010.
If you don’t need the money, consider returning at least the last 2 payments, and paying tax and penalty only on 2 distributions.
If not, in January consider changing te method, and reducing you distributions thru 59 1/2.
2010-11-09 23:31, By: dlzallestaxes, IP: [22.214.171.124]
L5: full distribution in first year?dlz,
I took his comment about not needing the money right now to apply only to the extra 7 months he could withdraw. I think he must have needed the rest of the cash flow.
As for rolling back funds, only one distribution could be rolled back or the one rollover rule would be violated. That limit applies to distribution dates, not rollover dates.
Eg. A distribution could be partially rolled back within 30 days and the rest at 60 days. This is considered only one rollover.
Conversely, if October and November distributions are rolled back together within 60 days of the Oct distribution, a violation has occurred since there was 2 distributions, even though there was only one re contribution date.
But I do agree with your basic point that if a SEPP plan is not really needed early on, it would be wise to roll back permitted dollars and bite the bullet for a penalty on remaining amounts andbasically abort the plan. But taxpayer would have to catch this relatively early in the game to make it worthwhile.2010-11-10 00:13, By: Alan S., IP: [126.96.36.199]
L6: full distribution in first year?I was commenting on the poster’s words, ” and really can’t see needing it until the SEPP expires in 5 years”, not your response.
He probably did not realize that he could wait until 59 1/2, and then have complete flexibility on the amount of his distributions from 59 1/2 to 70 1/2 anywhere from -0- to 100% of his IRA in any year, until the account was extinquished, or not.
Alan your other comment said it best, re all postings PLAN THE ENTIRE PERIOD FROM START TO 59 1/2 ( or 5-years if longer), ESPECIALLY FROM A TAX STANDPOINT, AS WELL AS THE CURRENT YEAR CASH FLOW AND FINANCIALLY. PLUS NEXT YEAR.
Too many people are trying to do this on their own, either out of ignorance or because they think they are saving money by not speaking to a financial or tax advisor. In actuality, they are usually costing themselves more.2010-11-10 00:45, By: dlzallestaxes, IP: [188.8.131.52]
L3: full distribution in first year?I’m a CPA, so numbers are my game. If you will be 59 1/2 in August 2015, how were you 55 in August 2010 ? You would have had to have been 55 in February 2010. ( Of course, you were still 55 in August 2010, but I do not think that is what you meant, or was it ?)
If you/everyone would give us their date of birth initially, we could understand the situation better.2010-11-10 00:50, By: dlzallestaxes, IP: [184.108.40.206]
L4: full distribution in first year?DLZ,
You may have picked up on something with regard to the dates, but he did not say he would be 59 1/2 in August 2015. I read it that he was55 in August 2010, and since he also said he would be 59 1/2 in Feb 2015,that meant to me thatAugust2010 was the month of his 55th birthday. He mentioned August 2015 as the other possible end date (instead of age 59 1/2 in Feb 2015) for hisSEPP plan, but it was not related to his age 59 1/2. That date was mentionedto see if he has to let the SEPPrun all 5 years even though he was already 59 1/2 in Feb 2015, and that later date as ALAN andJIM pointed out, is the correct one for his SEPP to end based on theAugust 2010 start.
Sometimes I find that you get too far into the details, and dig in to things that are fairly clear to me and probably to others. For example, he was just speaking of the extra money in 2010 that he did not really need, and not the annual distributions after that. You have to at least assume these posters have figured out if they need an income stream from a SEPP, and not suggest they cancel their plan in first year because they ask about the difference between taking full year vs. prorated payment totalin first year, in terms of its effect on final year SEPP distribution requirements (which Alan explained). I rely on Alan S as an expert (I am not) and when he has to clarify your post so the original poster does not “run with” the info you have given, I think itis time to be more careful in what details you supply in your responses.Don’t get me wrong. You do add valuable knowledge to this forum, but sometimes you can lead people off track in terms of your reply with regard tothe original question they posted. It sometimes reads like an interrogation of a hostile witness when they are just looking for advice. In this case, once he confirmed when the SEPP started (Aug 2010) and when he turned 59 1/2 (Feb 2015) in his original post, I thought we had enough info to answer his questions, and JIM and ALAN did just that. JMHO. KEN
2010-11-10 15:20, By: Ken, IP: [220.127.116.11]
L5: full distribution in first year?Thank you for the posts. Sounds like the only benefit in taking the full distribution in 2010 is if you think you will need the 7 months worth of income before 2015. 2010-11-10 18:26, By: Corporate Orphan, IP: [18.104.22.168]
L6: full distribution in first year?Dear C.O.:
I think you’ve got a good handle on the situation!
Jim2010-11-10 20:03, By: Jim, IP: [22.214.171.124]
L7: full distribution in first year?Correct. The 7 months is just some added insurance that your expenses will not exceed your SEPP distributions before your plan ends.
While this has not been mentioned, it is starting to look like the fed money printing machine couldtrigger a burst of inflation before your plan ends. If everything costs x% more, and therefore your SEPP dollars buy less, you would be glad you took the extra 7 months out this year.2010-11-11 01:08, By: Alan S., IP: [126.96.36.199]