L1: New 72t
I have my IRAs with Vanguard and Scottrade. I understand that when calculating my payments I have the option of using either or both IRAs. I also understand that if I use both I may withdraw from one or the other or split in any way I want to.
I want to take one annual payment per year.
I just turned 54. I will be 59 1/2 in early December, 2016.
Does the one-time annual payment have to be on the same date every year, around the same date, or could I take a payment now and another one in February of 2012?
If the payment dates are variable, does that mean I don’t have to take one in 2016 if I don’t want to?
If I file my taxes on-line, what do I need to do to let the IRS know what I am doing so I don’t get a scary letter from them?
2011-08-16 20:41, By: Rewrite, IP: [18.104.22.168]
L2: New 72t
Distributions may occur anytime between January 1 and December 31 – years are calendar years and not fiscal years.
>>If the payment dates are variable, does that mean I don’t have to take one in 2016 if I don’t want to?
Insufficient information – you need to provide the date of the first distribution and your date of birth. Even better, use our
First Modification Date calculator and you will be able to answer your own questions.
I would also suggest that you read our
>>If I file my taxes on-line, what do I need to do to let the IRS know what I am doing so I don’t get a scary letter from them?
You don’t need to send them anything, just keep really good documentation.
2011-08-16 21:17, By: Gfw, IP: [22.214.171.124]
L3: New 72t
He said that he will be 59 1/2 in early Dec 2016. He said he turned 54 recently, which I calculated to be in early June 2011. Therefore he was born in early June 1957.
All of his statements support these dates.
He plans to take his first annual payment in Aug or Sept 2011, and his 2nd in Feb 2012, 3rd sometime in 2013, 4th sometime in 2014, and 5th annual payment sometime in 2015. Since he will have taken 5 annual payments by 12/31/2015, he will not have to take
any payments in 2016, but he must wait until after 60 months from his first distribution to terminate his SEPP 72-T. If he takes any payment in 2016 before the 60th month, I believe that it must be either a full annual amount, or a prorated amount. If he waits
until after the 60 months, then he does not have to take any distribution in 2016, or he can take any amount after the 60 months because his SEPP 72-T plan will automatically terminate, successfully.
2011-08-17 03:10, By: dlzallestaxes, IP: [126.96.36.199]
L4: New 72t
I would add a codicil to what DLZ has posted, and that is: If first payment is made prior to Dec 2011, then the 60 month window would be reached prior to reaching age 59 1/2, (in Dec 2016) so he cannot take any extra distribution after the 60 months pass,
while it isstill prior to reaching 59 1/2– if he had already taken either a pro rated 2016 or a full year 2016 72t payment.If he had taken nothing in 2016 prior to the 60 months passing from first payment date, (like in Sept 2016, using DLZ example of
when 60th month might fall) then any payment taken after 60th month passed and prior to reaching 59 1/2 would have to conform to the SEPP rules for his annual withdrawal, either stub year amount, or full year amount. I may be wrong, because I am not an expert
in this forum, but after reading the forum questions about this subject for thepast 6 years,I don’t think so.Let’s seewhat others think. KEN
2011-08-17 03:31, By: Ken, IP: [188.8.131.52]
L5: New 72t
I would agree with Ken.
Stipulating a full annual payment for 2011 in the next month or two, the plan modification date is in Dec, 2016 since age 59.5 falls later than the 5 year anniversary of the first distribution.
Therefore the 2016 options prior to the Dec modification date are:
1) Take no 2016 distribution
2) Take out 11 months worth
3) Take out full annual
After the Dec modification date any amount can be taken out, but since there are only a few days left in the year, it would be best to wait until 2017 to simplify tax reporting and eliminate that extra 1099R coded 7.
2011-08-17 04:15, By: Alan S., IP: [184.108.40.206]
L6: New 72t
GOOD CATCH. MY MISTAKE. I FORGOT TO WAIT UNTIL AFTER REACHING 59 1/2 IF HE WAS GOING TO TAKE ANY DISTRIBUTION IN 2016 OTHER THAN THE FULL ANNUAL DISTRIBUTION OR A PRORATED AMOUNT BEFORE THE 60 MONTHS. HE SHOULD NOT TAKE ANY DISTRIBUTION BETWEEN THE 60 MONTHS
AND MID DEC 2016 WHEN HE WILL REACH 59 1/2.
I AGREE WITH WAITING UNTIL 2017 TO TAKE ANOTHER PAYMENT.
I THOUGHT THE PRORATED AMOUNT IN THE FINAL YEAR WAS THE RECIPROCAL OF THE INITIAL PERIOD. ACCORDING TO ALAN HE HAS TO TAKE AN ADDITIONAL AMOUNT PRORATED FOR THE MONTHS AFTER THE 60TH UNTIL AGE 59 1/2. I HAVEN’T SEEN THAT PRESENTED OR DISCUSSED BEFORE.
2011-08-17 04:37, By: dlzallestaxes, IP: [220.127.116.11]
L7: New 72t
I did not see that as part of Alan’s post, regarding him
having to take prorated after 60th month. He did say that he could take prorated for that year, or take nothing, or take full year amount prior to reaching age 59 1/2. The key here is that his plan cannot be modified until he has reached at least 5
years of payments and crossed the 59 1/2 age barrier. In his last year (2016), there are those special final year payment options he can choose that Alan outlined. Ken
2011-08-17 13:52, By: Ken, IP: [18.104.22.168]
L8: New 72t
Personal Opinion… without a real date of birth and date of first distribution, all we have is some nice guesses. Close is nice, but close sometimes merely results in problems.
2011-08-17 13:58, By: Gfw, IP: [22.214.171.124]
L9: New 72t
Thank you all for the information and advice. I think I have a pretty clear picture of how to proceed. It is still a little daunting because the penalties are so huge if I screw up, but I have done things like this before and am comfortable with it and don’t
want to waste time and money on getting help from a financial advisor that may not know much more than I do (or at least you-all).
For the record my birthday is June 4th and I am planning on taking out my first distribution before the end of September.
2011-08-17 16:11, By: Rewrite, IP: [126.96.36.199]
L8: New 72t
Alan’s option 2 is 11 months. If the first distribution is in Aug or Sept 2011, then the 2011 amount would be 100% or prorated (5/12 or 4/12).
Then, the final year would be 100% or prorated ( 7/12 or 8/12).
The only way I see his option for 11 months in 2016 would be for the first distribution being Nov 2011.
That’s my interpretation of his comments.
2011-08-17 17:14, By: dlzallestaxes, IP: [188.8.131.52]
L9: New 72t
Since he stipulated “annual distributions”, I assumed that he would take out 12 months worth this year whether he started in Sept, Oct or November. That means the 60 month minimum is satisfied at the end of 2015.
Entering 2016, we have a modification date of 12/6/2016 adding a couple days of extra margin. The final calendar year is not affected by the first year option (pro rate vrs full annual) as long as the 60 month minimum has been
met before the start of 2016.
Thus the 2016 options prior to 12/6 must meet the definition of a SEPP distribution. That includes taking nothing, taking the full annual or pro rating by the month. My interpretation of pro rating by the month is that the month
containing the modification date should not be considered, and therefore the ending month for prorating would be November.
With a Dec mod date, the situation is obscured somewhat because he obviously could take a full annual in any event (12 months). A better illustration would be someone with a mod date in August. For an August mod date, I would
use 7 months for a pro rated distribution, not 8 months. But it probably does not matter because some people would use 8 months, probably more than the number that would use 7. I have never heard of the IRS busting a plan when in the final year, the taxpayer
took out 7 or 8 based on how pro rating should be done. Once they do, we will need to clarify pro rating requirements.
Perhaps the reason the IRS does not clarify things like this is that if they did, then they would have to bust more plans, and in this case over the very last monthly distribution. No harm, no foul….:)
2011-08-17 22:24, By: Alan S., IP: [184.108.40.206]