intial year of SEPP
L1: intial year of SEPPBroker calculated 72-t incorrect and we need to try to fix.
IRA distribution started July 08:
The three options are as follows: (annual)
Fixed annuity 20128
Broker had client take 2484/mo starting july 08 untilmay 09
We understand there are options in 1st year (stub year) Is 72t disqualified for underpaymentor overpayment?
Is there a way to save the 72t election?
2009-05-15 22:49, By: Ron, IP: [184.108.40.206]
L2: intial year of SEPPSometimes the taxpayer can back into a correct 72t distribution within the first year or so, but the numbers must still comply with valid calculation options. Assuming that your annual choices used the max interest rate, it appears that using a much reduced ratecould produce a payment of 14,904, which would be the full annual amount for one of the fixed dollar plans. Even though he started in July, he has the option of taking a full annual distribution. You would have to back into the exact number of 14,904 using the correct age, account balance etc. Of course, this means that client would have to live on that exact annual amount for the duration of his SEPP plan. In these circumstances this is often impossible and for 2009, he would only be allowed the same total of 14,904. If this will eventually fail to work for him, the next best option is report a voluntary busted plan as of 12/31/08, and then start a new plan using the 12/31/08 balance, correct max interest rate etc, and that MIGHT yield considerably more. But here he faces the huge equity losses that probably hit his IRA between last summer and year end.
There are also options if he has other IRA account besides the one that produced the distributions so far. That could increase his account balance for either last summer or for a new plan starting January, 09.
The first thing to do is to determine the range of annual distributions he can live with for the duration of his plan. Then try backing into the original plan and if that fails to produce a workable number, then consider a new plan effective January. 09. If this fails also, then the plan would have to be busted now and a new plan started Jan, 2010.
2009-05-16 03:31, By: Alan S., IP: [220.127.116.11]
L3: intial year of SEPPAlan, would you please expand on your answer in paragraph #2 in your answer above?
Also, regarding the 1st year (stub year) of distributions: does the amount that you take in the remainder of the stub year from the first payment until Dec, 31st of that first year determine what your distributions will be for the subsequentfull calendar years? For example. If you plan to take $100K per year (Jan 1 through Dec 31) and you begin distributionson Sept 1st of the stub yearand take $50K before Dec 31st. Is it OK to take the remaining $50K in various increments prior to Aug 31st of the following year, then receive monthly distributions of $8333.33/mo thereafteruntil the Sepp expires in 5 years or 59.5 which everoccurrs later?
I’ve received conflicting answers. Can you clarify?
Thanks.2009-05-24 04:39, By: Jimbo, IP: [18.104.22.168]
L4: intial year of SEPPAssuming a calculated annual distributionof $100k, in the initial stub year where the first distribution is made in September, you have the option oftaking $33,333.33 (4/12sof the annual distribution) or the annual distribution. If the calculated annual distribution is $100k, $50k isn’t an option.
In subsequent years,as long as you distribute$100,000 during the 12 month period ending December 31, you can take the distribution in any increment you want as long as it totals $100k on 12/31.
None of your posts indicate an age, but based on age 55 and the first distribution occuring in 09/2008, you would need a starting IRA balance of about $1,664,598 dollars.
2009-05-24 09:30, By: gfw, IP: [22.214.171.124]
L5: intial year of SEPPGfw, thanks.
Can you comment/expand on Alan’s response (especially paragraph 2 of his response) regarding”backing into” the correct calc. using other IRAs? I assume that you can back into a calc if you had an additionalIRA(call it IRA #2) at the time that you began the distributions from IRA #1,buthave not added to or takendistributions from IRA #2. If my assumption is correct, can you just recalc. the beginning balance using the combined balances of the two IRAs prior to distributions from IRA #1, use an interest rate low enough(as long as it’s <120% of mid-term) to yield the desired amount and continue to take the distribution only from IRA1? Can you clear this up for me??2009-05-24 14:12, By: Jimbo, IP: [126.96.36.199] L6: intial year of SEPPAll I can say is that it appears that you are trying to change the plan after the factwhich you can't do without busting the plan - you are already in the SEPP's second year. The "SEPP Universe", interest rate, etc should have been determined before the date of the first distribution. I would also hope that no one will offer you advice on this forum on how to attemptto break the tax law. At this point you should probably consult a good tax attorney or tax accountant and work with them directly.2009-05-24 14:27, By: Gfw, IP: [188.8.131.52] L7: intial year of SEPPI don't think that my question/scenario was stated very clearly, at least not as clearly as Ron's original post. Canyou use the first post (Ron's)in this thread as the example and expand on Alan's response, particularly Alan's 2nd and 3rd paragraphs? Thanks.2009-05-24 15:38, By: Jimbo, IP: [184.108.40.206] L8: intial year of SEPPI understood your question and my answer above still stands. Your opportunities to change the plan to correct the errors ended in 2008.2009-05-24 16:08, By: Gfw, IP: [220.127.116.11] L9: intial year of SEPPCan you comment on Alan's response to Ron? 2009-05-24 16:11, By: Jimbo, IP: [18.104.22.168] L2: intial year of SEPPRON - Going back to your initial posting, you should have given us the balance, interest rate, and your date of birth originally. Someone might have been able to see if your broker was right or wrong, or if your thinking in that regard is correct. You received $ 14,904 in 2008. There are only 2 correct figures for 2009 and future years - $ 29,808 or $ 14,904. If neither one of these is acceptable for your planning, then bust your plan as of 12/31/2008 and pay the 10% penalty of $ 1,490.40 on your 2008 distributions. Then start a new plan as of 1/1/2009 using a correct set of factors. If you can satisfy your cash flow needs with less than all of your IRA balances, then use only the minimum balance for your SEPP 72-T, and save the rest in a separate IRA account for future emergencies.2009-05-24 16:44, By: dlzallestaxes, IP: [22.214.171.124]