How many payments?
L1: How many payments?I thought I had this figured out, but perhaps not. I was born on September 24, 1953. So I will turn 54.5 on March 24, 2008, and 59.5 on March 24, 2013 (I know, it”s 183 days after my birthday, but this is close).I plan to begin my SEPP on March 24, 2008, using the RMD method and taking one payment per year. My fifth payment will be in 2012. But since I don”t turn 59.5 until 2013, do I need to take a sixth payment under the SEPP in that year, too?2008-03-07 15:39, By: Eureka, IP: [184.108.40.206]
L2: How many payments?Eureka,
To alleviate the angst over the 1-2 day difference between 5 yrs ending and you turning 59 1/2, just have them start that first payment 2 days later, then you will clearly be 59 1/2 when you end the five year milestone after initial payment was made. With annual payments, in my example, the one on 3/26/2012 would be the fifth and final one that is needed in your case. Just wait till 3/27/2013 to start doing anything different. If you choose to do monthly payments starting in March, then you would need the JAN 2013 and FEB 2013 payments to complete the 60 monthly payments for your five years of payments.
Use the reverse calculator to see what initial IRA balance would support the annual payment that you want using AMORTIZATION method. Then you could move that amount (direct transfer) to a new IRA, and set just it up as the SEPP plan, and keep balance of original IRA for any emergencies over the next 5 years. That way,only that specific withdrawal would pay the 10% penalty, and SEPP plan would be unaffected. KEN2008-03-07 20:37, By: Ken, IP: [220.127.116.11]
L2: How many payments?Thanks for the reply. I do have another IRA for emergencies. By serendipity, the RMD method will give me about what I need (I do have an after-tax cushion) for the next five years. I realize that using amortization allows me the one-time change to RMD, but I don”t feel any great desire to go to the hassle of splitting up the IRA just for the purpose of starting with amortization. If were several years younger, I might think differently. Since I have your attention, could you answer a question I tried to post a couple months ago that I don”t think ever appeared? It seems as though a lot of SEPP problems on the board here arise from misunderstandings or mistakes by IRA trustees doling out automatic monthly payments. Wouldn”t a lot of that go away if more people took one payment per year? I realize that might mean paying taxes a bit earlier on some of the money, but the simplicity trumps that for me. Am I missing something?2008-03-07 22:12, By: Eureka, IP: [18.104.22.168]
L2: How many payments?I used to have semi annual payments (March and Sept) on a SEPP I started in 2006. In Jan 2008, I asked them to switch it to monthly, and make payments on 5th of the month (Schwab). They handled it without a hitch. If you know the GROSS amount (whether Annually or Monthly) and watch it to make sure it is going smoothly, there should be no problem. I think over time, you may do what I did and switch to monthly, which is just like getting a paycheck, vs. getting an inheritance when you receive that annual payment. It may be hard to dole that annual payment out over the 12 months, and not run out prematurely. If you ever switch to monthly, I would suggest that you used a date on or shortly after the 5th of each month, so in December you have plenty of time to “fix” anything that could go wrong with last payment. It also avoids the problem I saw posted recently where a 1st of month (January) payment was posted on the 31st of December, causing the total to be wrong with no window to fix. Banks and financial institutions sometimes accelerate a payment if the payment date falls on a holiday,(I have seen this with my pension) and I assume that is what happened with this guy.
Some people who have had problems with their SEPP plans got payments that didn”t add up to total needed for correct annual gross (in one example) and if they had paid some attention, after payments started, they would have caught it.I think the majority of problems that occur are when the recipient does not clearly outline what they want (in terms of Gross vs. Net withdrawal, etc.) and then does not figure out they are in trouble until after the calendar year has closed. Others take extra money out of SEPP IRA and don”t understand what they just did (in terms of busting the plan). I spent about 9 months reading the postingson this site and doing other researchbefore setting up my plan in March 2006. I felt very familiar with the program by the time I set it up, and I had already learned from the mistakes of others, and even posted questions when I was uncertain. It is true that you only have to check once if it is an annual payment, so there is an advantage to that, but I decided that the monthly cash flow would work better for me after two years of the semi annual method.Remember to outline the last payment date for your SEPP to your custodian (3/2x/2012) so they don”t issue a payment in 3/2013 that you may not want. Use the form on this website to document the details of your SEPP, and give it to the custodian, (or copy the info on to their required form) whilekeeping a copy for reference. KEN2008-03-08 05:51, By: Ken, IP: [22.214.171.124]