Must SEPP payment be on the same day each year
L1: Must SEPP payment be on the same day each yearI receive an annualSEPP distribution onJanuary 10th of each year.
I will reach age 59 1/2 on January 18 2009.
To claim aPennsylvania State tax exemption, I would need to receive theSEPP payment after January 18th.
Can I change the payment to January 20th without messing up the SEPP?2008-04-07 06:25, By: ding, IP: [18.104.22.168]
L2: Must SEPP payment be on the same day each yearHello Ding:
For federal income tax purposes all days of the year are the same; thus, you are free to take your distribution(s) whenever it suits your purposes. I am unfamiliar with Pennsylvania state tax provisions.
2008-04-07 06:50, By: TheBadger, IP: [22.214.171.124]
L2: Must SEPP payment be on the same day each yearI am a PA CPA of 48 years, a liaison to the PA Dept of Revenue for the PICPA and PSPA, and familiar with the PA tax exemption he is referring to.
In PA retirement plan (including IRA) distributions are NOT TAXABLE FOR PA if the taxpayer is 59 1/2 on the daste the payment is received.
Howevrer, Ding, you might not be aware of the other nuance of the PA tax law. Retirement Distributions are deemed to be return of contributions first, before any earnings or appreciation are taxed. This is called the “COST RECOVERY” method. Therefore,if you have not already recovered your contributions by 1/18/09, then the payment received on 1/10/2009 would not be taxable anyway. If you have already received your contributions by 1/09/09, then the payment on 1/10/09 would be taxable. Of course, if you have a balance of contributions not yet received that the 1/10/09 payment would take you into “taxability”, then only the excess portion would be taxable.
For example, you contributed $ 100,000, it is worth $ 500,000, and thru12/31/08 you have withdrawn thru your SEPP 72-T $ 80,000. Then a $ 10,000 payment on 1/10/09 would not be taxable because you are still recovering your “cost basis”.
If youhave already withdrawn $125,000, then the $ 10,000 would all be taxable because you have already recovered your “cost basis”.
If you had already recived $ 94,000, then $ 6,000 would be tax-free as recovery of contributed cost basis, and $ 4,000 would be taxable.
All of this is the reason for the new reporting for 2007 and future years of ALL 1099-R retirement paln distributions, whether or not taxable by PA because almost no one, taxpayers or practitioners, were reporting “early distributions before 59 1/2, taxable or non-taxable. Now we have to report all of them, and attach the 1099-R forms to the PA-40 income tax returns.
If you need more info on this, you can contact me at 610-825-3366, or firstname.lastname@example.org 10:07, By: dlzallestaxes, IP: [126.96.36.199]