L1: New SEPPBorn March 1961. Have 990k in traditional IRA that I will use to start a new SEPP plan and I have 250k available in after tax money. I have followed this site for a couple of years and it is fantastic. I would like some thoughts from the contributors whom obviously have vast experience with SEPP’s, i.e. Gfw, dlzalles, Allen S., etc. I could take 50k of the 250k after tax funds and along with some other income easily make it through 2015. I realize every case is different but generally speaking is it preferable to use the 50k and defer starting the SEPP until Jan. 2016 with five annual payments and possibly get a better interest rate or start the SEPP in Jan. 2015 with six annual payments and save the whole 250k for emergencies? Thank you for any experience you can offer.2014-12-28 19:43, By: crj, IP: [184.108.40.206]
L2: New SEPPI think that an important aspect will be what your tax situation will be each year, 2015 thru 2020, as well as your cash needs in those years. Then do tax and cash flow planning.
Also, use the “reverse calculator” on this website to determine the minimum that you have to use for the SEPP 72-T plan at the various interest rates from July 2014 thru Dec 2014/Jan 2015.
I suggest that you then set aside any excess from your IRA into a 2nd IRA for future emergencies, or a 2nd SEPP 72-T, at some time in the future.
If you start in 2015, then the annual amounts will be lower for 6 annual payments ending in March 2021, rather than if you started in 2016 for 5 annual payments, but terminating March 2021. Either way you cannot terminate your plan in March 2021 because you will not be 59 1/2 until Sept. 2021 since your dob is 3/1961.
The ideal situation would be to take only as much annually from the SEPP 72-T that would be taxable at 15%, if possible, and then supplement it with money from the $ 250K after-tax money. You might need a financial planner or tax practitioner to work out the options with you in this area.2014-12-29 01:12, By: dlzallestaxes, IP: [220.127.116.11]
L3: New SEPPAlthough most posters here feel that a 5 year plan has restrictions on the final stub year options vs a plan ending at 59.5, you might want to avoid a 5 year plan if you believe that you are restricted to 60 months worth of distributions in a 5 year plan.
You reach 59.5 in Sept 2020 according to my math. Therefore, if you start your plan in August, 2015 or sooneryou will avoid a 5 year plan in the first place because your modification date will be in Sept, 2020 when you reach 59.5. Come 2020, you will have the usual options of a full annual, a pro rated annual or nothing if you have taken out 60 months worth by 12/31/2019. That will give you some flexibility in 2020 to go either way with your distributions.
With respect to general planning, your use of the post tax non IRA money to control your tax bracket is a very good idea. How much of the after tax money that you exhaust annually or before the SEPPbeginshowever should depend on how sure you are that the SEPP distributions will not fall too far short of your expected expenses including possible emergencies. If you think youmight be stretched toward the end of the plan, do not use up too much of the after tax money before the plan begins.
2014-12-29 02:09, By: Alan S, IP: [18.104.22.168]
L4: New SEPPThank you for the help. There is no substitute for experience.2014-12-30 12:01, By: crj, IP: [22.214.171.124]
L5: New SEPPI have a follow up question. On my IRA’scustodian IRA distribution request I have the option of a one time distribution until I am 59.5 years old or scheduled distributions to 59.5. From the perspective of the IRS does it matter which I choose for my 72t Sepp as long as I take the correct amount every year and the correct taxes are paid every year?2015-01-05 15:20, By: crj, IP: [126.96.36.199]
L6: New SEPPIRS doesn’t care. But, in the first calendar year you have the option of the full annual distribution, or a prorated one. If you prorate the first year, then prorate the 5th year, which will be in the 6th calendar year, unless you start in January.
Most people may have a problem being disciplined to take the full year at the beginning of each year, and not then running out of money by the end of the year. Therefore, most people should opt for monthly or quarterly distributions.
Also, most people should also opt to have the taxes withheld and remitted by the financial institution, rather than trusting that they will be disciplined to save enough in order to file quarterly estimated taxes.2015-01-05 15:44, By: dlzallestaxes, IP: [188.8.131.52]
L7: New SEPPThank you. Excellent information.2015-01-05 17:50, By: crj, IP: [184.108.40.206]