You are here:
< Back

I would like to start a SEPP plan on 06/27/2018.
My date of birth is 06/27/1966.
I have $180,000.00 in my IRA account.
By choosing the fixed Amortization method, using the SEPP calculator on this website,
by inputting $396000.00 in total IRA value,
by inputting $396000.00 in amount to SEPP plan,
the calculator gives a distribution factor of 19.765,
and a SEPP payment of $20,035.87.
I wish to transfer “owned stock” with a value as close to $20,000.00 to an after-tax
account, and the remainder left, transferred in cash, for a total of $20,035.87
I wish to do this in 2018, 2019, 2020, 2021, and 2022.
In 2023, I will a) continue the same………… b) lower to a minimum………………………..
…………or c) stop payments until first modification date of 12/28/2025 at age (59 1/2).
Is my plan an acceptable method of determining substantially equal periodic payments?
2018-06-19 02:56, By: 72TIRED, IP: [2600:1700:de20:6240:d559:af66:d02b:61e5]

If you have $180,000 in your IRA, why are you using a figure of $396,000 as your balance in the calculator.
2018-06-19 17:47, By: Ken, IP: []

As Ken indicated, there is probably a typing error regarding your TIRA balance for the SEPP. Beyond that issue, you can meet your SEPP distribution by distributing securities “in kind” and topping off the SEPP distribution in cash to equal your exact SEPP distribution requirement. The challenge with this is to determine exactly what value the IRA custodian will place on each security distributed at the time of the distribution. Therefore, once your distribute the securities, then check your “history” on your next IRA statement to determine the total value of the securities which will eventually be reflected on your 1099R. The difference between that and your SEPP requirement can then be distributed in cash. Remember to wait a few days so make sure that the distribution value of the securities is final. The valuation of each security at distribution will also become your cost basis for each holding in your taxable account. Holding period starts on the date of distribution from the IRA.
You cannot stop distributions until the 2025 year when you have 3 options (0, 5/12 of annual or full annual). But you can also make a one time switch to the RMD method for the year you choose to reduce your payout if you wish, and in 2025 you would still have those 3 options available.
2018-06-19 18:21, By: Alan S, IP: []

Dear Alan S.
Thank you for your comment.
I did not make a typing error. I am inquiring as to the possibility that I have an
acceptable method of determining substantially equal periodic payments.
With my actual balance of $180,000.00 entered in the calculator, my SEPP payment
would be $9,107.21. This amount is below the dividend income of $14,000.00 that
comes into my account per year. So, the fixed amortization method shall never
liquidate or extinguish in level amounts the account balance, but only the yearly dividend
shall be partially amortized.
This brings me to my comment that if dividend’s produced
by apretax investment could be designated to an after-tax account, instead of increasing
myIRA,then I would have nota need to create a SEPP plan.
Can you tell me about the SEPP interest rate of 3.27%. Is this a fee? Is it a
percentage of the distribution, and who gets it?
2018-06-20 06:11, By: 72tired, IP: [2600:1700:de20:6240:9404:2d81:145e:e01e]

Dear Ken,
Thank you for your question.
Using the fixed amortization method the annual payment for each year is determined
by amortizing (which means to liquidate or extinguish) in level amounts the account
balance over a specified number of years determined using the CHOSEN life expectancy
table and the CHOSEN interest rate and the resulting annual payments are determined
once for the first distribution year and the annual payment is the same amount in each
succeeding year.
By inputting $396000.00 which is an “assumption” and not an actual, I am
CHOOSING my required outcome of $20,035.87.
As I am nearing 59 1/2 and I find myself with lackluster IRA performance, then, I may
use .03 Special rules (b) One-time change torequired minimum distribution method.

2018-06-20 04:22, By: 72tired, IP: [2600:1700:de20:6240:9404:2d81:145e:e01e]

I do not understand your posting. If you have $ 180,000 in your IRA, how are you going to put $ 396,000 into your IRA to have for the SEPP Plan ?
Either there is a typo, or you do not understand that you cannot just contribute an additional $ 216,000 into an IRA. The IRS limits IRA contributions to no more than $ 6,500 (over 50) into an IRA in any year.
If you actually have $ 396,000 in your IRA, then the rest of your FIGURES work. There isn’t any requirement that the distributions have to be in CASH. You are allowed to make a “distribution in kind”.
HOWEVER, you may have a different problem. I do not understand the term “owned stock”. If you mean shares of publicly-owned companies, like Facebook, IBM, Exxon, etc., again, no problem. BUT, if you mean shares in your own company, which is sometimes called a Self-Directed IRA, or ROBOS (Retirement Owned Business Opportunity Situations), that is strictly forbidden as an IRA or SEPP investment if you are involved in the business in any way. Therefore, no salary, no self-rental, no management involvement, etc. The IRS has an entire task force, and manual, related to ROBOS. (Check the internet for numerous articles.)
Also, remember that you will need cash for the IRA to pay the withholding taxes, or outside of the IRA to pay estimated taxes.
2018-06-20 04:53, By: dlzallestaxes, IP: []

Dear Dlzallestaxes,
Thank you for your comment.
I’ve been told that I must liquidate to cash to make the distributions…….
………..owned stock is stock that I do not wish to sell. If I have no choice but to
have a distribution payment of $9,107.21, then, $9,000.00 shall be in stock and
the remainder shall be in cash. If you could elaborate how stock is transferred from
a pre-tax account to an after-tax account, I would like to know, for I think it should
be a simple subtraction of shares in pre-tax and addition of shares in after-tax.
2018-06-20 07:00, By: 72tired, IP: [2600:1700:de20:6240:9404:2d81:145e:e01e]

I do not know who told you that you have to sell stocks in your IRA in order to distribute cash, but he is not a tax or financial planning professional. The fact that the stocks are in an IRA which is part of a SEPP plan is immaterial.
I have been distributing stock “in kind” for years from my own IRA, as well as for clients. But, those have been for satisfying RMD distributions, so the exactness was not an issue. In the case of SEPP distributions, you will have an issue with determining that your ANNUAL total of distributions is EXACTLY the amount of the annual required distribution. It is not necessary that every monthly distribution is 1/12 of the annual requirement. You can make an appropriate adjustment with your December distribution, so it is recommended that you make that distribution around 12/15, so that you have time to make any corrective action before 12/31.
Of course, you must have cash in the IRA/SEPP if you want the IRA custodian to withhold and pay the taxes, because the IRS will not accept “in kind” payments in stock. Since you have stocks, you should accumulate the dividend income to be used for the IRA to pay the withheld taxes. On the other hand, if you plan to pay estimated taxes instead of having them withheld, then you have to have other cash resources outside of your IRA/SEPP to pay the taxes quarterly, or to distribute cash from the IRA in addition to the “in kind” distribution.
2018-06-20 16:03, By: dlzallestaxes, IP: []

Dear Dlzallestaxes,
You would be surprised at what I have been told by people who are in charge of
assisting me with my money…..including my government folks.
I wish only to make one distribution within the confines of the year, and I want it
to be right, and I do not want it to be challenged after it has been done right.
I like the idea of the dividend accrual in the IRA going towards paying the
cash part of the distribution, but would paying the withheld taxes with my dividend
accrual from the IRA raise my distribution?
Can the accuracy factor of the yearly distribution be overcome by adjusting the
final distribution with money from either side of the plan? This way, unless the
government says something is wrong leading up to the final distribution, at the final
distribution,the money that is paid from after-tax or pre-tax monies will satisfy
the final distribution. No more worry about busting a plan.
Can you tell me, if at 55, if I am able to take my money out without penalty,
if, when I was separated from my company those who were 55 could?

2018-06-21 16:42, By: 72tired, IP: [2600:1700:de20:6240:c5a4:718a:6606:ad4]

If you are talking about “government folks” at the IRS, lots of luck. 99.9% or more of them do not even know what a SEPP is. Most of them would think you are talking about a SEP IRA. Similarly, most brokers and financial planners have never heard of SEPP plans, let alone how they work. Not to degrade my fellow tax practitioners, but most of them are similarly clueless. That is why the professionals on this website are so valuable, and free.
You have to be very disciplined to handle your finances by getting distributions once a year, and budgeting the expenditures for the entire year with those funds. Since the annual amount does not change under the usual plan, there is no change each year, regardless if your account balance goes up or down. The IRS does not care if you make withdrawals annually, semi-annually, quarterly, or monthly. The IRS only looks at the ANNUAL total on the 1099-R (and, in all honesty, does not compare the year-to-year amounts to make sure that they are the same, unless you are audited for some other reason.
The dividends received each year do not affect the ANNUAL REQUIRED AMOUNT that you determined when you set up the plan. The annual distribution is split between the amount paid to you, and the amount paid to the IRS. The dividends do not affect your annual payment, unless you are using a calculation which changes each year based upon the value of the plan as of 12/31 each year. In that case, the 12/31 values will be affected by changes in values plus income, minus distributions to you or IRS.
The IRS will never notify you that there is something wrong with the current year’s distributions because the IRS has no way of knowing about your distributions until it receives the 1099-R at 1/31 each year for the prior year.
Once you transfer your retirement plan from your 401-K, 403-B, etc. to an IRA, you are no longer eligible to use the “age 55 separation from service” provision from the IRS code, unless you go to work for another company with one of these plans, and that plan allows transfers into it from IRAs, and that new plan must also allow partial distributions periodically at your request.
2018-06-21 18:09, By: dlzallestaxes, IP: []

Dear Dlzallestaxes,
I did not determine the annual required amount. I placed my actual values in the
calculator and the resulting largest distribution it computed was $9,107.21.
Is this the most I can receive from the SEPP plan?
Since the fixed amortization method says that the annual payment for each year is
determined using the CHOSEN life expectancy table, can I choose to input an age
older than my actual age, so that the computer result is the value that is more
conducive to my pursuit of happiness? ($20,035.87)
Will this computation be an acceptable method of determining substantially
equal periodic payments?
What can you tell me about what a person must do to be considered disabled?
If a person is deemed disabled, can he take out of the IRA in the same way that
a person who is over 59 1/2, and who does not have an active SEPP plan?
2018-06-22 16:25, By: 72tired, IP: [2600:1700:de20:6240:c5a4:718a:6606:ad4]

Your question…Will this computation be an acceptable method of determining substantially equal periodic payments?
Short answer… No
Your age is your attained age in the initial calculation year. If the first payment is in 2018, it is your attained age in 2018. You can not pick an arbitrary age.
The account balance is the amount of your IRA dedicated to the SEPP plan. Once the plan starts, no additional fund may be added and no amount other than the calculated annual distribution may be taken.
Your Question…What can you tell me about what a person must do to be considered disabled?
The definition of disability, if strictly enforced, would leave few except the really disabled.
Q. What is the Definition of Disability for 72(t)??
A.The definition of disability can be found in IRC Section 72(m)(7). In one case,Dwyer v. Comm.,106 TC No. 18 (1996), the Tax Court agreed with the IRS and stated…

For purposes of this rule, an individual is considered disabled if “he is unable to engage in any substantial gainful activity by reason of any medically determinable physical or mental impairment which can be expected to result in death or to be of long-continued and infinite duration.” The Code specifies that an individual must be able to furnish proof of his disability in whatever form and manner that the Service may require. The court noted that the regulations under Section 72 also state that an impairment that is remediable does not constitute a disability.
2018-06-22 17:07, By: Gfw, IP: []

Dear Gfw,
Thank you for your answers.
If the long answer is YES……I will wait for it!
Remember: A tax dollar deferred to the future is worse than a tax dollar paid today!
2018-06-22 17:40, By: 72tired, IP: [2600:1700:de20:6240:c5a4:718a:6606:ad4]

You have asked a number of different questions, so I’ll try to answer them.
1. The usual method of doing the calculation will give you the highest ANNUAL distribution.
2. Most people start with that amount. However, you are allowed to make a ONE TIME change to the other method to REDUCE your annual distribution.
3. You must use your own life expectancy. You cannot “choose” another more convenient one in order to increase your annual distribution.
4. SEPP plans are an acceptable way to avoid the 10% Early Distribution Penalty (type “02”).
5. You do not need to set up a SEPP if you qualify under any of the 10 or so exceptions to the 10% penalties. Type “07” is the exception for Health Insurance paid by someone who has collected Unemployment Compensation for 12 consecutive weeks. Type “05” is for Unreimbursed Medical Expenses to the extent allowed as an itemized deduction (i.e. > 7.5% of Adjusted Gross Income in 2018, or > 10% after 2018) regardless if you itemize or take the new, higher, Standard Deduction starting in 2018.
6. The Disability exception (type “03”) requires “total and permanent disability”. If you are disabled, you should check with SS to see if you qualify for starting SS benefits early, as well as Medicare coverage. The IRA disability and SS disability regulations are different, so you will have to pursue them based upon your specific situation.
7. If you qualify under any of these exceptions, then you avoid the 10% penalty, but the distributions are still subject to the federal (and certain state) income taxes. But you might have little or no taxable income if you are disabled and not working. Or, you might consider taking distributions without a SEPP, and paying only the 10% penalty. You should meet with a professional tax practitioner or qualified financial planner to determine which way to proceed.
2018-06-22 17:12, By: dlzallestaxes, IP: []

Dear Dlzallestaxes,
For me, what is the usual method of doing the calculation which gives me the
highest annual distribution? I told you that my calculating, attempting to result in the
highest annual distribution, using my actual values, in the amortizing method, resulted in
an amount of $9,107.21.
Is this the most I can receive (currently) using the SEPP calculator?
You say, ” You cannot “choose” anothermore convenient one (life expectancy)
in order to increase your annual distribution.”
I say, ” The words of the fixed amortization method uses the word “chosen”
when describing the life expectancy table which means that I may choose whichever
life expectancy I wish.
It is not a matter of convenience.
It is a matter of freedom.
It is a matter ofsubstantially equal periodic payments.
It is a matter of constitutionality.
It is a matter of fair play.
It is a matter of fact, that words mean exactly what they mean when you
read them.
Under this (amortization) method, the account balance, the NUMBER from
theCHOSEN life expectancy table and the resulting annual payment are determined
once for the first distribution year and the annual payment is the same amount
in each succeeding year. (Notice it does not say age… says…..number.)

2018-06-22 18:43, By: 72t, IP: [2600:1700:de20:6240:c5a4:718a:6606:ad4]

All of the semantics aside (which are important), it should be fairly obvious that you do not have unlimited freedom to pick any arbitrary life expectancy that you wish, in the eyes of the IRS.
2018-06-22 19:11, By: sm69, IP: []

Dear sm69,
In the eyes of the American people, we say that we had limited freedom when the
pre-tax investment was created because it did not allow for an after-tax at the
initial offering. Five years later…..the after-tax came on board.
We the People do not care about the eyes of the IRS……we care about freedom
to get our money out as innocently as it went in…..we had no strings attached.
With my plan, I have the freedom to remove my money as fast as I deem necessary
for the pursuit of my life, liberty, and happiness.
I am still following the rules.
I still must be careful in what amount I choose.
I agree that with Special rules (a) Complete depletion of assets that I could
be out of the pre-tax investment realm within five payment years or less……
…………so be it……..freedom is a choice………is it/or is it not…….in America!
2018-06-22 19:57, By: 72tired, IP: [2600:1700:de20:6240:c5a4:718a:6606:ad4]

There are 3 acceptable methods that the IRS says can be used. What you are talking about doesn’t fit into any of the 3 methods… do what you want, but you are then on your own.
You should also probably quit posting as we have some frequent IRS members that monitor the website… they probably already have you in their cross hairs based on your IP address which accompanies your posts..2600:1700:de20:6240:d559:af66:d02b:61e5 – not too hard to identify you.
You have had your run, now just do what you want and assume the risk.
2018-06-22 19:27, By: Gfw, IP: []

Dear Gfw,
I believe MY way IS an acceptable method of determining substantially equal
periodic payments. It is the fourth ……and best way.
When Congress and the IRS tell me that my plan is legitimate, then and only
then shall I pursue a SEPP.
Maybe my Senators will open a window of opportunity for all Americans, like the tide…
…….shall raise all ships…….and free the American people from the pre-tax chains that
bind them.
I am glad that the IRS is involved in this site and , yes, I agree, they do know me.
I cannot do what I want ……..unless it is legal……and agreed upon…………….
………..and it surely will be without risk.
May you have a good day, and may your actions help………
………………Make America Great………..Again!

2018-06-22 20:36, By: 72tired, IP: [2600:1700:de20:6240:c5a4:718a:6606:ad4]

Don’t shoot the messenger. It does not matter what anyone thinks about the regulations, you must still abide by them, or be responsible for the consequences of not following them.
Life expectancy is written into the law based upon your age, not how long you think you will live, or how long you want to live.
There is no “constitutional” aspect, and the “fair play” is the fact that Congress and the IRS have at least provided an allowable way for you to start taking distributions before 59 1/2, and without any penalty. The regulations could have required you to wait until 59 1/2 to take any retirement distributions.
The word “number” appears to refer to the “expectancy” divisor that is related to a given age.
If you are fixed in wanting to take a certain dollar amount each year, then just build in the extra penalty on the EXTRA money you take by separating your IRA into 2 IRAs. Set up one for the SEPP, and use the other for extra distributions. I don’t remember your age or specific balance, but here is a possible plan. First of all, I suggest that you consider taking a full year’s annual distribution the first year. That way, the “extra” amount in excess of the prorated amount will not be subjet to the 10% penalty the 1st year. If you need/want $ 20,000/year for 5 years, set that up in a separate IRA. The 10% penalty will be $ 2,000 per year, or a total of $ 10,000. Then set up a SEPP plan with the balance.If you do not have taxable income, that $ 2,000 penalty will be your only tax each year. Of course, the regular income taxes each year will be based upon your taxable income each year, after your Standard Deduction or Itemized Deductions, if higher. If you are not able to do your own tax planning in this regard, then I suggest that you hire someone to help you with this planning.
You should appreciate the free advice you are getting here, rather than complaining.
2018-06-22 19:39, By: dlzallestaxes, IP: []

Dear Dlzallestaxes,
I want you to know that I appreciate each and every one of you that do try to help
people who look into the SEPP program. Your answers are quite creative…..yet…
….for the average person…..this program …..and it’s potential for failure…….
…..where the taxpayer loses….is not right.
We the People want to earn our money……..and pay our taxes….in the year we
earned our money…..and stop this pre-tax lean against our freedoms.
With all due respect…..I have not complained once. I merely showed you a
way that we all can win…..and I shall wait for approval.
Thanks again for all of your help…….so far!
2018-06-22 21:03, By: 72tired, IP: [2600:1700:de20:6240:c5a4:718a:6606:ad4]

FYI, since this money is in an IRA, you have never paid taxes on this money. You actually saved taxes by taking a tax deduction for your contribution into an IRA, or by deferring taxes by making contributions into a 401-K or 403-B. You do not pay taxes on distributions from IRA’s, or other retirement plans, until distributions are taken. If you didn’t like to save taxes, and allow your contributions to grow tax-free for many years, you could have just paid the taxes when you were working.
2018-06-22 22:39, By: dlzallestaxes, IP: []

Dear Dlzallestaxes,
I agree with everything you typed.
I started the tax-deferred process when it was first offered. It was called a 401k.
Very few choices in there…..but tax-free. I then rolled into a Traditional IRA when I was
free to do so…….many more choices and tax-free…….still not sure if it was the right
thing to do.
I know now that I should not have loaned my hard earned money to my government
for free because they now want to penalize me for wanting it back.
I showed you that the amount they are willing to give back to me early does not
amortize the balance…….just the dividends. This is wrong.
My advice to all Americans is to stay away from investing in tax-deferred plans.
Give the quarter of every dollar and take your 75 cents …….and run!
Thanks again for your helpful answers and your willingness to listen to all sides.
We the People shall prevail!
2018-06-23 00:20, By: 72tired, IP: [2600:1700:de20:6240:c5a4:718a:6606:ad4]

Everyone is entitled to his own opinion and perspective. None of my clients will agree with yours.
If you plan properly, you might even pay a significantly lower tax in retirement than you would have while you were working. If you had been able to wait until the year you became 55, you could have been able to possibly take distributions from your 401-K without the 10% penalty.
And if you stay in the 12% tax bracket (which is easier on a joint tax return than as a single taxpayer), all qualified dividends and long-term capital gains are TAX FREE. Also, if you keep your income low enough, even your SS benefits may not be taxed.
2018-06-23 00:35, By: dlzallestaxes, IP: []

Dear Dlzallestaxes,
Again, I agree with everything you typed.
Staying in the limited choice of the 401k was a losing idea. Now, if I had the
choice at the beginning to start in the choices of the IRA, then I would not have had
to leave, and the 55 age to do what I please would have been fine. So, why is the 55
rulegone for me just because I did the right thing switching to an IRA.
I suggest penalty-free at 55 for everyone!
If I could choose the amount that I should have the right to have in my SEPP plan
I could be exactly where I need to be in the 12% tax bracket.
Ultimately, tax-free money is not as free as taxed and free money!
Again, thanks for your expertise in this field.
I know I am smarter …just not any richer…yet…..for speaking with you all!

2018-06-23 02:12, By: 72tired, IP: [2600:1700:de20:6240:c5a4:718a:6606:ad4]