L1: Life ExpectancyHello, my question is about how to determine which life expectancy table to use for an SEPP. This is for a new SEPP Plan. My date of birth is 6/25/1979 and my spouse/sole beneficiary’s is 8/11/1982. I’m considering having the first distribution occur sometime this month. (Yes, I realize that I’m fairly young to be doing this.) Rev. Rul. 2002-62 Section 2.02(a) says, “The life expectancy tables that can be used to determine distribution periods are: (1) the uniform lifetime table in Appendix A, or (2) the single life expectancy table in 1.401(a)(9)-9, Q&A-1 of the Income Tax Regulations or (3) the joint and last survivor table in 1.401(a)(9)-9, Q&A-3.” So can I read this to mean that I can use whatever table I want to determine the life expectancy to use? The IRS’s “Retirement Plans FAQs regarding [SEPPs] have examples where the IRA owner’s life expectancy seems to be based on the 1.401(a)(9)-9, Q&A-1 table without explaining why that table was used instead of the table in Appendix A of Rev. Rul. 2002-62. Sorry if this has been addressed in the forums already, but I get an error every time I try to search the forums. Thanks!2013-12-03 00:35, By: joe, IP: [220.127.116.11]
L2: Life ExpectancySimple answer… you have no choice of mortality tables. The same mortality table is used to determine life expectancy for single, joint and uniform life expectancy table. Use our calculator, the appropriate mortality table is already part of the calculator.2013-12-03 00:49, By: Gfw, IP: [18.104.22.168]
L3: Life ExpectancyOK, maybe I’m confused about how to use the calculator. What do I select for “Use Uniform Table”, “Use Joint Table” and “Pro-Rate 1st Year”? The default for each of these is set to “No” — so should I leave those answers that way?2013-12-03 01:48, By: joe, IP: [22.214.171.124]
L4: Life ExpectancyIt is rare for anyone at your age to have emassed enough of an IRA or 401-K to make it worthwhile to start to set up a SEPP 72-T. Also, it is unusual for someone to need to start to take withdrawals and to want to be locked in for 28 years. Further, if you have to bust your plan at any time in the next 28 years until you reach 59 1/2, you will have to pay the 10% penalty on everything that you have withdrawn from the beginning. Also, you and your wife must have separate accounts, not joint accounts.
Maybe you could enlighten us as to your special situation.2013-12-03 02:06, By: dlzallestaxes, IP: [126.96.36.199]
L5: Life ExpectancyI have a little over $100,000 in a former employer’s 401(k). I was recently laid off and expect to be out of regular work. I have other assets but any potential sources of immediate income are of interest. My wife has a separate 401(k), but it has much less in it and I don’t want to bother to try to set up a separate SEPP for her. What do you think?2013-12-03 03:42, By: joe, IP: [188.8.131.52]
L6: Life ExpectancyI plugged in your age and $100K in the SEPP calculator, and got an annual Amortization (the highest one) payout of only about $3,400. Do you really think $283 per month (before taxes) is going to be much help in your situation, considering that you have to keep taking it for over 26 years, and if you make one mistake, you will owe an additional 10% on all you have withdrawn to that point, plus penalties? I think you need to work on other methods besides using a SEPP plan. A short term plan may be to roll the 401k into an IRA and take a single withdrawal that you will pay the 10% (early) penalty for to keep yourself afloat while trying to come up with a better long term solution.(I am assuming that your401k will not allow withdrawals at your age.)2013-12-03 05:07, By: Ken, IP: [184.108.40.206]
L7: Life ExpectancyTo expand on Ken’s response, assume you got a great job 6 months from now, or hit the lottery, and did everything right for 25 years while you took $ 300/month. Then when you were 58 you lost your job or had an emergency, and needed an extra $ 1,000, you took from your SEPP. That extra withdrawal would cost you a $ 9,000 penalty ( $ 3,600/yr * 25 years = $ 90,000 * 10%).
As Ken suggested, I would recommend rolling your 401-K into an IRA, take distributions as needed now, and pay the extra 10% tax. If you will be in a low tax bracket, or -0-, for the next year, then you might be paying only the 10% penalty. Also, look at the other exclusions that are available for paying health insurance and medical expenses. Further, see if you can wait until January so that any withdrawals are not added to 2013 income that you and your wife already have earned.
Finally, do a budget to see where you might be able to reduce your costs until you get straightened out financially. See if your parents, or your wife’s, are in a position to help out initially.2013-12-03 14:20, By: dlzallestaxes, IP: [220.127.116.11]