Monthly vs annual distribution
L1: Monthly vs annual distributionStarting a new SEPP Aug. 5, 2014,single life, annuitization, $1,000,000 using June midterm AFR. Mybirthday-04/60, wife’s birthday-01/61.
The financial services I am using calculate a monthly payment of $3880.29 using monthly midterm rate of 2.27%.($46,563.48 for the year)
The yearly calculation from this site (and others) comes out to $45,716.38.
Is there a reason you don’t provide or recommend a monthly calculation. Is the $3880.29 correct for monthly. Could I also use the annual calculation and divide by 12 for monthly installments.
thanks for your help and all the great info on this site.
regards-mackster2014-07-21 16:31, By: Mackster, IP: [184.108.40.206]
L2: Monthly vs annual distributionFrom the numbers that you provided, it appears that they may be calculating the monthly payment based on a monthly interest rate. We calcaulate everything on an annual interest rate – the monthly is merely the annual divided by 12.
Calculations based on the monthly rate are ok until you decide to change the payment mode – what do you do then? Using the annual rate in teh calculations means that you can take the annual amount – no more and no less – anytime duruing the year whether that is monthly, quarterly or whenever.
If you fodon’t have additional funds available for emergencies, you may also want to segregate a portion of the $1,000,000 for emergencies.
2014-07-21 16:58, By: Gfw, IP: [220.127.116.11]
L3: Monthly vs annual distributionI’m sure they are calculating monthly, I’m looking for a good place to verify the calculations, do you have/know of a good source?
this is my third SEPP in three years, all calculated the same way, unfortunately I did not find this site earlier and am wanting to do better due diligence. So far the IRS has not complained and my financial institution correctly fills out the 1099 and I do not have to fill out the 5329 myself.
Emergency funds are in place and taken care of. I am considering a fourth SEPP this year through Vangaurd with intention of eventually transferring all funds there. I am wanting to make sure I understand the process and have looked through this site in detail with that in mind.
I am aware that Vangaurd will not code the 1099 correctly, I will have to file a 5329, and in all likely hood I will get a penalty notice from the IRS when I do so.
Can you recommend a monthly distribution calculator?
Is it acceptable ( as I believe) to use the annual calculation and take 1/12th distributions of that total?
2014-07-21 17:47, By: Mackster, IP: [18.104.22.168]
L4: Monthly vs annual distributionI prefer using the annual calculation, and then take 1/12 for the monthly amount, or any other amount for other frequencies. That way the frequency will not affect the rate or calculation, especially if you change during the year, or year-to-year.
The IRS will not send you a penalty notice because you filed a 5329 form. Quite the contrary. By filing the 5329 form you put the IRS on notice that you should not get a penalty notice because you have a SEPP 72-T plan, which is an exception to being subject to the 10% early distribution penalty.2014-07-21 20:06, By: dlzallestaxes, IP: [22.214.171.124]
L5: Monthly vs annual distributionThank you, at this point I wish I had used the annual calculation and taken 1/12 monthly installments, as so far I have not found a source that demonstrates and calculates the monthly annuitization using the monthly midterm rate.
To clarify, I was not expecting to get an IRS notice because of the 5329, but in spite of it. It’s good to hear that would not be the case.
Any chance an SEPP would be busted if one uses different calculation methods on totally separate SEPP IRA’s? i.e. 1/12 of an annual annuitization in one, monthly annuitization on a second one, or life expectancy method on a third SEPP?
Regards-Mackster2014-07-21 20:35, By: Mackster, IP: [126.96.36.199]
L6: Monthly vs annual distributionEach SEPP 72-T can have a different PLAN, i.e. frequency, starting date, prorata or full annual distribution in the first calendar year, different interest rate based upon date of first distribution.
But, you must stick with the original PLAN in each different SEPP 72-T plan.2014-07-21 20:45, By: dlzallestaxes, IP: [188.8.131.52]
L7: Monthly vs annual distributionThe IRS does not appear to have problems with minor interest rate differences due to some custodians preferring to let the distribution frequency effect the annual SEPP amount. No one posts here that indicates IRS issues with this.
In your case, I would be more concerned with attracting IRS attention because you have so many plans with an increasing 1099R amount each year. I cannot recall anyone posting here before that had 4 independent SEPP plans. Note that you will receive 4 different 1099R forms but the IRS cannot tell by these forms how many separate plans you are maintaining because you could also have a single plan that uses more than one IRA account, and very few examiners at the IRS are smart enough to look at your prior history and determine that an increasing SEPP distribution total strongly indicates you have added new plans. The 5329 form will not provide this information either, as it will just show the total distribution amount subject to exception code 02. Eventually, the IRScould get curious and ask you for all your documentation, and that brings some of these other questions into play. While each plan is independent of the others, attracting IRS attention to your plan is never good because the IRS and the tax courthave been inconsistent in recent years with just about all aspects of SEPP distributions.
If all your SEPP accounts are at Vanguard, you will have to be very careful in mixing them up, which is less likely if you have them with different custodians. Normally, a 5329 is not any kind of red flag, but with multiple plans getting a 1099R with the custodian providing the exception code 2 would provide somewhat more reassurance to the IRS that an additional party was underwriting the plan.
2014-07-21 23:37, By: Alan S, IP: [184.108.40.206]
L8: Monthly vs annual distributionI would not be concerned about the IRS seeing increasing amounts. The IRS computers are not programmed to compare any amounts from year-to-year for any item. IRS will only check to verify the all amounts reported to them by Vanguard, etc. equal the amounts reported on the tax return.
I am not as concerned as Alan about the IRS computer adding the 1099-R amounts together. They never send notices just because income decreased or increased, or deductions increased or decreased, or personal exemptions changed. I think Alan gives the IRS personnel and programmers more credit for intelligence than I have seen in my 50 year career. And their capabilities are declining quickly as the experienced people are retiring, and their computers are becoming more out of date.2014-07-22 00:46, By: dlzallestaxes, IP: [220.127.116.11]
L9: Monthly vs annual distributionAppreciate the opinions and concerns on both sides, would love to be able to consolidate SEPP’s at this point, but don’t see where that’s possible. It would probably be easier to leave investments with current custodian, they seem to do a good job on the SEPP side, but really feel like I need to understand take control of my own investments since I have the time to do so.
Regards-Mackster2014-07-22 02:06, By: Mackster, IP: [18.104.22.168]
L10: Monthly vs annual distributionYou cannot consolidate SEPP 72-T accounts. Each one is a separate PLAN, and each is based upon its own “IRA ACCOUNT UNIVERSE”.
If you want to “take control of my own investments”, you would set up a brokerage acuard for each type of SEPP plan that you presently have.angcount for each type of SEPP plan that you want to possibly use to invest in specific securities, i.e. stocks, Corporate bonds, CDs, etc.. Otherwise, if you are only going to invest in miutual funds, then you can continue with your present custodian, or electronically transfer each SEPP account to a corresponding new SEPP account at Vanguard for each type of SEPP plan that you currently have.2014-07-22 04:25, By: dlzallestaxes, IP: [22.214.171.124]
L11: Monthly vs annual distributionHmm, know I am confused. Some of this sounds like semantics, but maybe not. You use the terms “Plan”, “type” of plan, and “account”. I will ultimately have 4 SEPP’s that were all initiated from a traditional IRA, I will also have a ROTH IRA, another traditional IRA as emergency fund, and a family of investments that are not part of any retirement plan.
I want to be able to re-balance and choose a variety of investments within each one of these, without intermixing them. Some of these may and probably will hold the same investment, i.e. The same Vangaurd mutual fund, ETF, etc. in more than one of the IRA’s.
Do each one of these entities require their own brokerage account or mutual fund account (which ever I choose) which will all be under the Umbrella of one Vangaurd account?
I am speaking with Vangaurd as well but so far do not seem to have found the right person.
Thanks for you time and help.
2014-07-22 14:22, By: Mackster, IP: [126.96.36.199]
L12: Monthly vs annual distributionWhen you set up each SEPP 72-T “PLAN”, you are required to indicate which “ACCOUNT #’s” are included in the “UNIVERSE” of each plan. There can be several Accounts in any SEPP PLAN, and there could even be accounts at different mutual funds or brokers in the same PLAN.
Within each “account”, you can have as many, or as few, mutual finds or other investments, and you can buy or sell any of the investments within any “ACCOUNT”.
2014-07-22 14:38, By: dlzallestaxes, IP: [188.8.131.52]
L12: Monthly vs annual distribution>> Do each one of these entities require their own brokerage account or mutual fund account (which ever I choose) which will all be under the Umbrella of one Vangaurd account?
Each SEPP plan should have its own account – no intermixing os accounts – if asll under one account, you will most likely have problems and with 6 IRA accounts that include 4 SEPP plans, you could easily end up in an audit. 2014-07-22 16:47, By: Gfw, IP: [184.108.40.206]
L13: Monthly vs annual distributionI am concerned because you are asking these questions at this time.
I hope that you have had separate ACCOUNTS set up for each of these different SEPP 72-T “PLANS”, as well as a fifth one for your ROTH IRA. Further, I hope that you have kept ROTH IRA Contributions in an account different from any ROTH IRA CONVERSIONS because of the different “5-year” rules.2014-07-22 16:54, By: dlzallestaxes, IP: [220.127.116.11]
L14: Monthly vs annual distributionEach of the SEPP, ROTH, and traditional IRA plans I have are in separate accounts wth my current custodian. The questions stem from the possibility of establishing an additional SEPP with VG and ultimately doing a direct transfer of the other accounts as well. I do understand the repercussions of a mistake, so I want to make sure I understand how everything will flow as not to make a mistake, or simply leave accounts with my current custodian until I am 59 1/2.
i appreciate the willingness of people to share their expertise on this forum.
2014-07-23 02:16, By: Mackster, IP: [18.104.22.168]
L15: Monthly vs annual distributionNo problem, as long as you keep every SEPP account separate, and do only direct electronic trustee-to-trustee transfers.2014-07-23 02:33, By: dlzallestaxes, IP: [22.214.171.124]