Initial IRA Balance

L1: Initial IRA BalanceThanks for all the insight! I’m still confused regarding what amount to use for the initial IRA balance. I rolled over my 401K to an IRA just before the end of 2009. During the first week of January 2010 I added another 12.5% to this IRA from another and since then the IRA has grown a few percent. I’d like to start my 72t in July but not sure what initial balance to use. Can you advise?2010-05-15 16:32, By: Dennis, IP: [98.207.114.188]
L2: Initial IRA BalanceYou are working in the wrong direction.Start with how much you think you will need, and use the “reverse calculator” on this website. That will determine the maaximum amount that you will have to place into your “SEPP 72-T UNIVERSE”. We usually recommend that is all that you should set aside initially. The balance of your IRA account(s) should be kept in one or more separate accounts for either setting up a 2nd or even 3rd SEPP 72-T in the future, or taking an occassional extra distribution from these other IRA (non-SEPP) accounts, even though you might incur the 10% penalty on just this amount. This is preferable to locking up all of your IRA balances for the longer of 5 years or until 59 1/2.However, there are some other exceptions that you can use, plus 401-K if you are over 55 and separated from servicve, or there is employer stock in your 401-K or employer retirement plan.If you give us a full picture of your situation, we might be able to give you suggested approaches. Date of Birth, Types of Retirement accounts and amounts in each as of 12/31/2010, and 4/30/2010. You will be also able to use any dates between them, as well as 5/31/2010. 6/30/2010 might be too close to your start date. Also, how much do you need for the rest of 2010, and how much annually in future years ?2010-05-15 16:50, By: dlzallestaxes, IP: [173.49.30.37]

L3: Initial IRA BalanceHere’s more of the full picture that you requested. My account balance as of 12/31/10 was $480,000. During the 1st week of January I added $60,000 for a total of $540,000 and the IRA at the end of April was $575,000. Date of birth is 4/21/56 and we need $2000 each month staring in July. Thank you for any advice that you can offer regarding the initial starting balance.2010-05-15 17:02, By: Dennis, IP: [98.207.114.188]

L4: Initial IRA BalanceNot to change the direction of this thread.. but in general is it a good idea to add/subtract funds in the same calendar yearyou start a SEPP plan. In other wordsif I moved funds in/out ofa IRAfrom1/1/10through 6-15-10. I then starta SEPPusing this IRA asthe singlefunding source on 7/1/10 using the 6/30/10 IRA balance. (of course I would NOT move any funds in or out at this point). Would I be Ok with the IRS as long as I could prove my SEPP plan started after mydeposit(s)/withdrawal(s) to this IRA?Thanks, Bob.2010-05-15 17:28, By: Bob in the Az , IP: [76.178.64.165]

L5: Initial IRA BalanceRE-POST your new thread. It is very confusing to everyone to have more than 1 topic in a thread, and I will never answer anyone who posts a second topic within a thread.2010-05-15 17:32, By: dlzallestaxes, IP: [173.49.30.37]

L5: Initial IRA BalanceBob:I think your question is quite appropriate for this string as it compliments the original question. The answer to your question is that you are free to transfer funds between IRA accounts to get the correct amount in the SEPP IRA account(s)to generate the correct amount of monthly / quarterly / semi-annual / annual distribution dollars you need to live on. In fact this is the RECOMMENDED method to properly position your funds to establish a good SEPP Plan.Keep this point in mind: Your SEPP Plan “start date” is the date of your first distribution from your SEPP Plan IRA account(s). Whatever you do with your funds BEFORE THE SEPP PLAN START DATE by moving them into or out of your IRA accounts does not affect your SEPP Plan, except for setting up the correct amount to generate the desired distribution, BEFORE your IRA custodian makes the first distribution. Use the confirmation to determine the exact date of this first distribution.Second important point: Trustee-to-trustee transfers do NOT generate Form 1099-R reporting so always use this method to move your funds around.Jim2010-05-17 14:01, By: Jim, IP: [70.167.81.119]

L4: Initial IRA BalanceIf I understand your postings taken together, you transferred $ 60,000 from another IRA in Jan. 2010into the one that you created by rolling over your 401-K late in 2009. These are both considered eligible to be part of your SEPP 72-T UNIVERSE as of 12/31/2009, along with any other IRA accounts that you had at that time, or now.Since you are only 54, do you expect that you will not find another job, or replace the income from a salary reduction in the next 5 1/2years, because that’s how long you lock in these accounts in a SEPP 72-T ?Someone else will do the reverse calculation to determine how to split your accounts.2010-05-15 17:29, By: dlzallestaxes, IP: [173.49.30.37]

L5: Initial IRA BalanceIf I understand you correctly, I can simply use my account balance as of 6/30/10 for my 72t calculations and first distribution in July. I was confused because I’ve heard about some “rule of reasonableness” that seemed very vague. Also, on Fidelity’s website and calculator they state that you must use the account balance as of 12/31 of the previous year in which the first distribution occurs. I would really appreciate any further comments / advice.2010-05-15 17:54, By: Dennis, IP: [98.207.114.188]

L6: Initial IRA BalanceDennis,The April 30, 2010 balance of $575,000 could be used. It is within 90 days of the first distribution.The 12/31/YY rule makes sense for plans that startpayments early the next year, but July is 7 months later, so any month end balance (that you can document in hard copy for your SEPP records) within a few months of your first payment is considered reasonable. Many people do 401k rollovers and then start a 27t plan within 1-2 months, and they don’t have the luxury of having had the money in the IRA at end of previous year. You also can’t pick a date for your balance that is before any final additions or withdrawals were done prior to the SEPP plan starting, and you added money that you wanted in your starting balance, so another reason to use a newer balance, since it is the reasonable thing to do.July distributions can use the May 3.45% Fed Mid Term ratein the calcs, so to withdraw $24,000 per year (gross of $2k per month before taxes) you only need about $448,416 in your IRA according to the REVERSE CALCULATOR on this site. I would suggest moving about $125,000 at a new IRA (by trustee to trustee transfer), and then at end of MAY, use theremaining Appx $450K balance in the larger IRA as your SEPP 72t plan “universe” on which you do the calculations. This leaves you with a smaller separate IRA (could be with same custodian, but must be under a separate account # not connected to the larger one, and make sure you fill out beneficiary forms for new one) that is not connected with SEPP plan, and if in next 5 1/2 years, you happen to need some extra money from your IRA, you just take it from smaller one and pay the 10% early withdrawal penalty on that withdrawal alone, while not affecting the validity of your SEPP 72t plan. When you get new 5/31/2010 balance, redo your Amortization (largest payout) calculations with the regular SEPP 72t calculator on this site, and use the 3.45% rate (unless the rate goes up in June, and you could use that rate instead for payments starting in July which would be slightly higher). The age in your calcs is 54 if youwere born in 1956.Then you have the correct figures you need to submit to the custodian for your Sepp payment plan. I would suggest monthly payments on the 5th of month, so you have time in DEC to double check your year to date gross withdrawal total and make sure itis correct. If not, take more or put some back quickly to get corrected before 12/31, and track down why the error occurred. Stay away from first of the month, because holidays like New Years day can force automatic payments that are done at end ofDecember, for 13th pmnt in that year.They usually don’t end up on your 1099-R, but not worth taking a chance. If you start in July, you could ask for 7 month’s worth of payments in July and monthly amount after that, to take full year’s worth over 2010 (this may cause your taxes to go up if you worked in part of 2010 so think about it) or just start in July, and get 6 payments in 2010. I hope this helps. KEN2010-05-15 18:40, By: Ken, IP: [71.192.120.143]

L7: Initial IRA BalanceKen, Thank you! Your insight was very helpful! Dennis2010-05-15 23:16, By: Dennis, IP: [98.207.114.188]