New SEPP for 2018

L1: New SEPP for 2018
I’m retired and living off my pension but looking for a bit more income.
deferred annuity of $645K
DOB 4-30-65
Start date 10-3-65
Have read the tax rules on exemptions (72(t)(1) and (2)) and done a quick calculation using the annuitized method of SEPP to get approximately $35K annually without the 10% penalty (as I am only 53 now). Will leave my IRA untouched during this process.
Will do the SEPPuntil I am 60 then change it. Where am I offbase with my thinking?
2018-05-24 14:04, By: Eli, IP: [2601:2c4:c880:1a8c:a82a:61ed:cc39:d86a]

L2: New SEPP for 2018
Eli, sounds like in you’re in the ball park. Your start date for the SEPP I assume you meant Oct 2018?
I ran the SEPP calculator using the Jul 2018 interest rates posted on this website–the maximums available for a distribution in Jul–with your numbers and got the below numbers. Of course, rates will likely change a tad by Oct. So $35K is in the ball park.
I too am living off my pension and started my 72t plan a couple years ago. One thing to keep in mind in case you were not aware. If you find the payout amount over the 6+ year period of your plan is too much (e.g., bumps you into higher tax bracket), you are allowed to change from the annuity or amortization method to the minimum distribution method one-time (can’t change back again after that). Also, since pre-tax retirement account distributions add to gross income, I’m thinking about converting my IRA to a ROTH IRA over a period of several years to take advantage of the Trump 12% (temporary) new tax bracket (married filing joint) starting 2018. Given when I start taking social security in a decade or so, 85% of it will be taxed (because my MAGI will exceed 44K), pushing me in to a higher tax bracket. Seems logical to me therefore to start paying the tax now at the lower rate. Fortunately, per IRS Pub 590, I can still do the conversion with my SEPP IRA.
Anyway, thought I’d give you my non-expert feedback on your post. Good luck, Mike

SEPP Plan Assumptions

Owner Born
4/30/1965

Plan Age
53

Total IRA Accounts
$645,000.00

SEPP Plan Account
$645,000.00

SEPP Interest Rate
3.44%

Investment Interest Rate
4.00%

1st Distribution Date
10/30/2018

Date Age 59.5
10/30/2024

5 Year Date
10/30/2023

1st Modification Date
10/31/2024

Minimum Distribution Method

Distribution Factor
31.400

Initial SEPP Payment
$20,541.40

Amortization Method

Distribution Factor
19.018

SEPP Payment
$33,914.41

Annuity Method

Distribution Factor
19.113

SEPP Payment
$33,746.66

2018-05-24 14:43, By: copleyma, IP: [2600:1700:c541:1490:5009:df84:71b0:dc14]

L3: New SEPP for 2018
Copleyma — Great answer. You are “right on” about your idea of doing ROTH CONVERSIONS up to the 12% bracket limit. This will reduce the amount in the IRA when you get to 70 1/2 for your Required Minimum Distributions, as well as when you will start SS benefits if you deferred them to 70.
In addition to your other points, people forget that at some time either you or your wife will die, and the survivor will be filing as a single taxpayer in the 22% tax bracket. The longer you can file a joint return, and pay taxes at the 12% tax rate, the better. Also, in the 12% tax bracket, Qualified Dividends and Long-Term Capital Gains are taxed at a -0- Tax Rate, which becomes additional tax planning opportunities.
This is what I call “PLANNING THRU RETIREMENT” when I do presentations to other tax and financial planning professionals, as well as to public groups.
2018-05-24 15:30, By: dlzallestaxes, IP: [173.59.49.132]

L4: New SEPP for 2018
very good points indeed. I was just sitting down with my Mrs. the other day and went thru the hypothetical of me going first. I showed her how her projected survivor benefits (to include social security) would put her into the 22% tax bracket, filing single. I showed her how taking IRA distributions would then put her even deeper into the the bracket, thus paying more taxes. So I reasoned with her that it made sense to convert our IRAs now while we’re in the 12% joint bracket–over several years–using non-retirement monies to pay the taxes. I then attempted to see what our breakeven point would be for paying those taxes, using my brokerage ROTH Conversion calculator. Of course, actual returns (not hypothetical averages) makes all the difference when it comes to calculating breakevens but I was comfortable in knowing a 5-7 year payback period was doable using even a conservative rate of return (4%) in my formula.
Having said all this, I’m reading a book by Robert Carlson, The New Rules of Retirement, 2d edition, by Wiley. In it, he covers all the points you are making and much more, along with reasons for not converting, if applicable. He clearly makes the point that each person’s circumstances are unique and there are no one-size fits all rules for making retirement plans. One has to weigh all the various retirement issues (medicare, social security, longevity risk, rate of withdraw, sequence of returns, etc…) strategically over a long retirement (the IRS life expectancy tables were last updated in 1983) to ensure we don’t run out of money…or at least can sustain our lifestyles over said retirement.
It’s a great read so far; I would recommend it to those on this forum–young and old–retired and not-retired–to get a very detailed grasp of retirement planning.
2018-05-25 18:15, By: copleyma, IP: [2600:1700:c541:1490:ed81:3250:95d:5538]

L5: New SEPP for 2018
copleyma and dlzallestaxes — thank you for your replies! I’m glad to know I’m basically on base with my thoughts so far. Will table this til this fall (yes, I meant october 2018 not whatever date I mistakenly typed) and check the interest rates then. We too are converting IRAs to Roth when we can — keeping our AGI below the annual threshold tax-wise.
Very much appreciates your insights! Have a great summer! -Eli
2018-05-29 22:40, By: Eli, IP: [2601:2c4:c880:1a8c:d599:cc2a:da2d:6e09]