Is this correct?
L1: Is this correct?I”m trying to make sure I get this right before I go through with this. Appreciate any help you can give.Age: 52Benificiary age: 48I separated my IRA”s in Aug. 08; one to a traditional IRA, the other to a SEPP IRA which = $750,877
Using your calculator, I got $42,677 per yr. or $3,556 per month.I want to start taking monthly payments starting in Oct., so $10,668 taken out this year ”08.Taking monthly payments next year (and till 59 1/2), will total $42,677 each year.Vanguard has told me that they believe that I”m supposed to take out the whole year”s amount for ”08.I have read in this forum that I could take out 3/12 of the yearly amount in the first year if I want.I just want to make sure I”m on the right track before I do this. Thanks for your help
2008-09-03 11:40, By: simpletruth, IP: [220.127.116.11]
L2: Is this correct?You DO have a choice for 2008 of 3/12 for an October initial SEPP distribution or 12/12, the full annual amount. I am surprised that Vanguard did not agree, but perhaps you were not talking with someone well versed in SEPP plans.
I have not checked your calculation here, just the question.2008-09-03 11:49, By: Alan S., IP: [18.104.22.168]
L2: Is this correct?My numbers are very similar to yours – I hope to begin my 72t in Sept. My understanding is I could take 4/12 of the 2008 total in monthly payments *or* the entire annual amount for 2008 – it makes no difference to the IRS. However, I discovered different investment firms may have their own rules about how they will calculate and distribute an SEPP in order to properly mark the 1099-R as a type 2. In my case, Edward Jones will allow either a monthly or annual lump sum distribution for 2008, BUT, they insist that the distributions for the next 5 years be of exactly the same frequency, meaning I can not take the full amount for 2008 in Sept then switch to monthly distributions in 2009 and beyond. They interpret that as a modification that could cost me the 10% penalty interest. I assume they are doing this to protect themselves from a lawsuit more than to protect me.I”m ok with this since I plan to take the full amount in Sept and I”ll just plan to budget carefully till the next distribution in Sept 2009,10,11,12. An advantage I see is, if properly invested, the lump payment could bring a nice payout each year to augment the 72T income.2008-09-03 12:13, By: AL, IP: [22.214.171.124]
L2: Is this correct?I don”t understand your last comment. Your annual lump sum payout will be the same each year. I think you might have meant to say that by having only an annual lump sum payout, the account will be able to generate income during the year so that your balance will be reduced by the difference between the amount distributed and the amount earned.
If that isn”t what you meant, then I don”t understand your last comment.2008-09-03 13:00, By: dlzallestaxes, IP: [126.96.36.199]
L2: Is this correct?Yeah, I wasn”t too clear about that. The money *should* be growing whether it remains in the IRA waiting to be distributed or whether it is invested in a brokerage account when an annual lump sum distribution is made. I guess its more of a consolation than an investment strategy since I am not going to be allowed, by E Jones, to switch to monthly distributions in 2009 after taking the annual lump this year, more of a shrug and “oh well, at least I can invest it to make a bit more money for the year till I need it”. 2008-09-03 13:42, By: AL, IP: [188.8.131.52]
L2: Is this correct?So…..is this true that you can”t take the yearly lump sum in Sep.( or in my case, Oct.) and then switch to monthly payments next year?Why is there so much confusion concerning 72t? I talked to T. Rowe Price and Vanguard and both seem reluctant to give any advice concerning these early withdrawals……I understand they don”t want any liability…….I”m grateful for this forum, and want to believe that I”m on the right track, but I wonder why these companies aren”t up to speed on the particulars of 72t……I would think that they would be setting up these things every day……Thanks for the replies.2008-09-03 21:44, By: simpletruth, IP: [184.108.40.206]
L2: Is this correct?I agree there seems to be a serious lack of expertise in setting up a 72t at the investment firms. I am in the process of switching to Edward Jones from a firm that would not even run the calculations. Edward Jones sets limits on how they will set one up, but at least they will handle the calcs, mark the 1099-R appropriately, and stand behind their work. Sometimes I”m suspicious that a firm”s reluctance is due to your intent to remove money when its to their benefit to keep it… There was a lot of foot dragging with my first firm and here I am at least 5 weeks later about to need the money and now I”m forced to switch firms. Hopefully I can get this transfer done before the seller of the property I”m buying signs the agreement and I need to cough up the cash.All I can say is do your homework and push for answers from your agent. If you get the run around, switch firms – they”re a dime a dozen, one on every street corner. If you do move it helps to be sure all your investments can be held by the new firm to avoid liquidating and reinvesting – that can cost money.2008-09-03 22:12, By: AL, IP: [220.127.116.11]
L2: Is this correct?My reading of the IRS rules on section 72(t) is that the IRS does not care what payment frequency is chosen, so long as it is at least annually. If you choose semi-annual, quarterly, or monthly, it is of no concern to the IRS. All they will do is look atthe 1099-R statement for your SEPP account to verify that the same amount has been taken for the duration of the SEPP.
Additionally, the IRS does not care if you change frequencies, although excessive changes in distribution frequency could accidentally create a problem if an incorrect amount is distributed, say by an extra monthly check being sent to you.
Your IRA custodian should not care what payment frequency you choose or whether you change the fequency in mid-SEPP. It is likely that they would require you to request this in writing, however. If they do not allow you to do this, it likely has more to do with their own administrative policies than with what the IRS requires.
Ed2008-09-03 22:21, By: Ed_B, IP: [18.104.22.168]
L2: Is this correct?Yes, it is an administrative decision by the investment firm to limit changes to the distribution frequency, not so much a strict reading of the IRS rules.Even though I disagree with Edward Jones” conservative reading of the rules, at least they are equipped to handle a 72t whereas my previous firm wouldn”t even touch it.2008-09-03 22:33, By: AL, IP: [22.214.171.124]
L2: Is this correct?–feedback to simpletruthsimpletruth,Sorry for chiming in so late. I am responding to your 2nd post in this thread. I started a 72t in March 2006 at age 56 with Schwab. I told them I wanted payments in March and Sept each year, and I took the full year amount in first year. In Dec 2007, I instructed them over the phone and then in writing to change my payments to the 5th of each month starting in Jan 2008, and they did it with no problem. I started a 2nd 72t thru my Vanguard IRA in May 2007 to help pay for a second home we were buying. They had a form that I had to fill out, but I included my own specific instructions for payment. I instructed them in writing to pay 5 months worth in May 07, and then start monthly payments in June. These instructions included dates and payment amounts. They had no problem. I did not ask them for advice, which may be part of your problem–and it is from the liability issue that they don”t want to give you advice.The sample SEPP form on this website is worth using in conjunction with any paperwork required by the custodian. Schwab used just the form I supplied (the one from this website), while I matched my numbers to those on the Vanguard form before submitting, and added my payment instructions.FOOTNOTE- I see you used the AUG Max interest rate of 4.16%. You could use Sept 4.26% rate for Oct first payment and get about $500 more per year. Sticking with the Aug rate and your figures, make sure you include the pennies ($3556.44) in your monthly distribution figure. If you just get paid $3556 per month, it ends up $5.24 short ($42,672) of your annual distribution of $42,677.24 which would not match your “plan”. If the year end difference is under a dollar, I have read that would be acceptable. I also assume you know that the age to use is the one you will attain by 12/31/08 for a 2008 SEPP start year.KEN2008-09-13 07:18, By: Ken, IP: [126.96.36.199]