L1: health issuesIergency recently moved to south america and want to start a sepp account. I wanted to know if I start it and need more money for an emergency health issue does this bust my sepp account. I know I should keep an extra account for emergencies, but am worried if I might need more.2011-02-03 18:19, By: howie, IP: [126.96.36.199]
L2: health issuesYes, taking more than the calculated amount from your IRA would bust the SEPP. That is why an emergency account is recommended if you have the money, since a separate IRA outside the SEPP reduces the amount of the SEPP calculation.
In your situation, it might be wise to assess your health insurance situation as the more comprehensive your insurance is, the less likely you will have large uncovered medical expenses. You would be substituting a higher known cost of the premium for a reduced chance of a large unplanned medical cost.
Also, when you bust a SEPP due to a large medical expense, it is not that costly if it happens in the first year since you will not have prior year’s of penalties or interestto come up with and the current year medical exception might waive much of your current year penalty. But the farther along you get the more at risk if you bust the SEPP.2011-02-03 20:30, By: Alan S., IP: [188.8.131.52]
L3: health issuesSince you are planning before doing anything, it is a common recommendation to separate your IRA into 2 or more IRAs. Use 1 IRA for your SEPP 72-T. Then, when an emergency arises, you can use the non-SEPP for such situations. If your situation at that time qualifies under any of the other exceptions, then you can take applicable distributions from the non-SEPP account without being subject to the 10% penalty, but it will be subject to the regular income tax. ( If a medical expense, you will have a 7.5% threshold, which will be higher because of that distribution.)
The previous discussions about extra distributions for health issues involved existing SEPP 72-T plans. In those instances there is uncertainty as to the IRS position on whether distributions in excess of the annual amount bust a plan if they were for health issues or other exceptions.2011-02-03 22:31, By: dlzallestaxes, IP: [184.108.40.206]