L1: more questions
I guess it’s no surprise that I have additional questions regarding the pending activation of my SEPP plan with monthly distributions beginning this month. I spoke with the trustee/custodian of my IRA (Vanguard) on a few matters earlier today regarding the
SEPP and distribution matters. They indicated that they, in fact, would code all the 1099-R’s as code 1′ which means I will need to file a 5329 at tax time. They indicated that it’s corporate policy; no ifs, ands, or buts. No problem. They also indicated
that they could withhold on my behalf for taxes; but that it is not required to do so for whatever the reason.
If, Vanguard did withhold XX% for taxes from each distribution, would that be part of the approved distribution amount (I imagine it would)? And how would the logistics of using those collected
funds by Vanguard be distributed to the IRS at tax time? I think I have seen guidance from your site indicating that leaving them (Vanguard) out of the tax withholding business leaves one less thing to go wrong and just taking care of it myself through whatever
strategy I choose (saving a portion in another account, etc.). Secondly, does the IRS require any type of quarterly or semi-annual tax payment estimated or otherwise for distributions I take over the course of the calendar year? Or, do I just file my taxes
per usual and pay any owed (or refund, I hope) at that time? If too large an amount is owed what would they do? And lastly, if this year (first year) is treated as a stub year’ and the distribution starts this month (I’m 55 with birthdate 05/11/1956), what
are my options in the last year of the SEPP (2016) for distribution? This unearned income’ (from the SEPP) will be my primary income (I think) going forward for at least the foreseeable future. I don’t know if this means it’s treated differently than say,
earned income’. Thanks very much again in advance of your response.
2011-10-10 20:41, By: Mark, IP: [126.96.36.199]
L2: more questions
You will be subject to the 5-year rule. If the first distribution occurs on 10/15/11, the first modification date will be 10/15/16. If you do a stub year this year and take 3 months, in the final year I would take 9 monthly distributions (must total a minimum
of 60 monthly distributions or 5 annual distributions). Once the plan ends, you tan take as much or as little as you desire.
You would be better off doing your own withholding. And yes, your will probably need to file estimated taxes – depends a lot on your individual situation.
2011-10-10 20:52, By: Gfw, IP: [188.8.131.52]
L3: more questions
Who would be best suited to provide the answer to the withholding question? The IRS? Also, which mortality table is acceptable to the IRS for the SEPP calculations? I thought it was Annuity 2003, but I see many others in your mortality calculator.
2011-10-10 21:02, By: Mark, IP: [184.108.40.206]
L4: more questions
Start by estimating your total income and deductions for 2012. If you owe tax and have no other withholding (or if married, your spouse isn’t employed) you will probably have to pay estimated taxes. If you use Turbo Tax or and other tax program, enter your
2012 data in the 2011 version. The IRS also has a withholding calculator athttp://www.irs.gov/individuals/article/0,,id=96196,00.html
The mortality table in the SEPP calculator is the only one that is acceptable. From the life expectancy calculator page…Note, do not use the results for either SEPP or Minimum distribution calculations.
2011-10-10 21:10, By: Gfw, IP: [220.127.116.11]
L4: more questions
The IRS is usually never the best one to answer any tax question.
What do you mean by “who is best to answer the withholding question” ? You submitted a rambling narrative, rather than numbering your questions so you, and we, could later reference them specifically.
You, or your tax professional, have to project your taxable income, and deductions, for each tax year, in order to determine your projected tax liability and the estimated tax payments. Even if you have the custodian withhold and remit the tax payments,
you or your tax professional should be doing similar calculations. No custodian knows your personal tax picture in detail/
2011-10-10 21:14, By: dlzallestaxes, IP: [18.104.22.168]
L5: more questions
Sorry about the ‘rambling narrative’. You all have been so helpful in this endeavor. In the future I will ensure that my submissions are more structured. Thanks!
2011-10-11 00:08, By: Mark, IP: [22.214.171.124]
L2: more questions
1. Vanguard, and most custodians of SEPP 72-T plans, are familiar with withholding federal ( and state, if applicable) income taxes from each distribution, at 10%, 15%, 25%, or 35%, or more depending upon your instructions. They remit these taxes to IRS
( and state) usually weekly, so that they are remitted on a current basis.
2. If you opt to make the estimated payments yourself, they are due 4/15, 6/15, 9/15, and 1/15. Some people prefer Vanguard etc making the payments because they do not believe that they are disciplined enough to never forget to make the estimated payment.
3. You are not permitted to avoid withholdings and/or estimates. You will be charged interest and penalties.
4. There are special “safe harbor rules” that a tax professional can explain to you concerning primarily the first year.
5. Your “annual distribution” is split between the amount distrubted to you, and the amounts withheld and remited to IRS ( and states). If they withhold before 12/31, this will count to this calendar year’s distributions, even if they submit it after 1/1.
2011-10-10 21:05, By: dlzallestaxes, IP: [126.96.36.199]
L2: last questions (I hope)
Age: 55 (5/11/56)
120% Fed. Mid-term rate: 2.28% (Aug. 2011)
Account balance used for SEPP: $521,561.39 (as of 09/30/2011)
Life Expectancy from Pub. 590 Appendix C’ Single Life Table: 29.6 years
Amortized Method: $24,422.65 annually or
I am requesting an initial distribution from my SEPP account custodian (Vanguard) today. I plan on taking monthly distributions from now going forward using this year (2011) as a Stub Year’ concluding with 2016 also being a Stub Year’ with distributions
on the SEPP ending with the October 2016 distribution for a total of 60 months. No annual recalculations will be made.
Does each monthly distribution need to be on the same day? Vanguard has no interest in my SEPP plan document being in their possession. Does that sound right? I believe I read that it was a recommendation in A Practical Guide to SEPP’.
Do my calculations appear to be correct?
Thank you very much for all of your assistance.
2011-10-13 18:12, By: Mark, IP: [188.8.131.52]
L3: last questions (I hope)
1. The monthly distributions do not have to be on the same day. You may want your first one now, and all future ones on the 5th of the month ( never choose the 1st or 2nd).
1a. You can change frequency each year, or even during each year, so long as the annual amounts are the same. For example, you may need “extra” money to pay real estate taxes, and in April for income taxes, and can get by with lesser amounts in other months.
2. The documentation and calculations are your esponsibility, not theirs. You could have an IRA at another custodian that is part of your SEPP 72-T Universe that they are not aware of being included in the calculation. Also, you do not have to submit the
documentation to IRS with your first tax return, although many practititioners/taxpayers do submit it.
3. 3 months in 2011 and48 months in 2012-2015 leaves 9 months ( thru Sept 2016), and therefore the plan would end before Oct 2016, not with a payment in Oct 2016.
2011-10-13 20:31, By: dlzallestaxes, IP: [184.108.40.206]
L4: last questions (I hope)
Again, thanks for all your help. You guys have been very patient. I appreciate it. Well, I think I’m up to speed on this material and will retain all documentation. So begins the long SEPP haul.
2011-10-14 00:39, By: Mark, IP: [220.127.116.11]