increase amount on SEPP
L1: increase amount on SEPP I have start my SEPP on Feb 01, 2010. Using calculation from this side already using Amortized over life expectancy. Since than my IRA has increase another $200,000. Any option that I can increase amount pay out monthly without bust the plan. Right now took out $26,400 annualy(or $2,200/mo) base on $550000 IRA account(at that time). I am own a small business that it not doing very well right now would like to increase the amount so I can cover some bills. My accountant said I can increase one time during the plan but the more I read from this side it look like its not possible. I need some help here and greatly appreciate for the answer.2010-10-18 19:50, By: TD6751, IP: [126.96.36.199]
L2: increase amount on SEPPYour accountant is wrong or youmisunderstoodwhat he told you.
Once the plan starts, the specifications are set in stone and cannot be changed. You can make a one-time switch to the Minimum distribution method, but I really doubt if that would increase the payment.
Question… where did the $200k come from?2010-10-18 20:00, By: Gfw, IP: [188.8.131.52]
L3: increase amount on SEPPFirst thank you for the answer. That what I understand the plan, may be my accountant misunderstood with something else. My IRA are mostly in stock dividends, Market has increase quite a bit lately so my IRA account.2010-10-18 20:21, By: TD6751, IP: [184.108.40.206]
L4: increase amount on SEPPSince it is an increase in account value, it won’t change the plan distribution.
You could use the calculator, input your information and take a look at the amount that the Minimum Distribution method would provide based on total current account value, but my guess is that it won’t increase the distribution.2010-10-18 20:34, By: Gfw, IP: [220.127.116.11]
L5: increase amount on SEPPYou could adopt a recalculation plan since you are still in your first calendar year. You would just update all 3 factors you used originally and use of the much higher account value will boost the distribution for next year, but not this year. I mention this only as a possiblity based in several IRS letter rulings approving recalculation. You can research them on this site.
That said, note that using recalc has the following potential pitfalls:
1) You likely have volatile investments in your IRA to get a 40% increase in value in just the last 10 months, and with recalc your annual distribution will bounce all around with your gains and losses. Of course you could reinvest in more stable holdings to protect your gains, and that may be wise with or without recalc.
2) Recalc means an increased chance the IRS will question your calculations since your distribution will be bouncing around each year.
3) And there will be a new calculation each year meaning an added risk of error. This opposed to a one time calculation when you are not using recalc. More calculations plus IRS inquiry into your plan equals considerably more risk, despite the obvious approval by IRS of proper recalc procedures.
4) Interest rates have dropped so your increased 2011 distributionwill be less than 40% of your 2010 amount; conversely, interest rates over the term of your plan will probably increase and provide an increase in your future distributions with respect only to the interest rate component.
5) If you adopt recalc you must use the same date for each year’s update of the 3 factors; you cannot change that date or otherwise pick and choose the factors to update.
Again, this would not increase your distribution for 2010, but next year is not too far away. You may want to give this some thought, but be very careful if you want to make this change.
One other factor to consider for 2010 is whether you have taken a full annual distribution yet. You started in February, so you may have planned to use an 11 month figure. Regardless of what you do with recalc, you still have the option to expand your 2010 distribution to 12 months worth if you have not already taken out that much.
2010-10-18 21:53, By: Alan S., IP: [18.104.22.168]
L6: increase amount on SEPPIt also represents a change in the initial assumptions on which the initial calculation was determined so beware before you make you decision – especially if you documented the plan.
The PLRs that approved the concept, are based on assumptions adopted when the plan was implemented – not several months later.2010-10-18 21:59, By: Gfw, IP: [22.214.171.124]
L6: increase amount on SEPPThank you Alan, It sound a little too complicate and risky to me, but will study some more what you has advise, Thank again. This board do have many experts on this 72t rules, has provide a lot of good info for many folk here and thank for that. I am surprise not many people include some has CPA and Financial back ground even aware of this plan.2010-10-19 00:29, By: TD6751, IP: [126.96.36.199]
L7: increase amount on SEPPI’ll throw in an “outside the box” idea. Consider “busting” the current plan. Pay the 10% penalty on what you already withdrew. The distributions would be taxed anyway. Then start a new plan with the $ 750,000 balance, rather than the $ 500,000 amount back in February. If you can start by 10/31, you could take out a distribution of either 3/12 of a full year’s NEW distribution, or 100% of the new full year’s distribution. Remember that you will need money by 4/15 to pay the taxes and penalty on the initial plan distributions, plus on the new plan distributions.
You might want to seperate the $ 750,000 into 2 accounts, say $ 500,000 and $ 250,000. While the distributions under the $ 500,000 would be about the same as under the present plan, you would be able totake a 2nd full year’s distribution. Then use the other $ 250,000 to take periodic emergency distributions, with 10% penalty, or start a new additional plan in January 2011and take a full year’s distribution early in the year to pay all of teh 2010 taxes, especially if your business approves durin 2011. You might even set up the 2nd plan for $ 150,000, and keep the remaining $ 100,000 for emergencies.
Unless Alan or GFW see a flaw in this approach.2010-10-19 03:08, By: dlzallestaxes, IP: [188.8.131.52]
L8: increase amount on SEPPI have two comments. The first is to DLZ’s first sentence in the second paragraph of his most recent post:
“You might want to seperate the $ 750,000 into 2 accounts, say $ 500,000 and $ 250,000.”
DLZ didn’t specify but he probably intended to say that in order to follow his advice in this paragraph you WOULD have to bust your plan BEFORE spliting your large IRA into two smaller IRA’s. If you tried to transfer part of your existing $750k IRA that action would also constitute a busted plan.
My second comment addresses how your account grew by around 40% in less than one year. I am suspect that all of your increase was totally related to account value growth due to asset appreciation and dividends, but rather that you have added assets during this time period. If your account has actually grown without adding new money, then you should be “running money” rather than whatever you are doing now. True growth as you have described would put you in a league of your own in the “money management” world. So please make sure you HAVEN’T been adding assets to your account. If you discover that your have added assets then your plan is already busted and you need to correct this situation before doing anything else.
Jim2010-10-19 14:46, By: Jim, IP: [184.108.40.206]