New sepp question.
L1: New sepp question.Greetings. I have recently retired and am considering tapping my rollover IRA.
I was born July 12 1960 and want to start taking payments this month.
I read in the planning tips that one should draw from a cash account so the amount would be an exact match to the amortized amount. Is there any other reason to draw from a cash account?
Vanguard has told me that my rollover fund can make distributions to the penny but I don’t know if that is true. The distribution form does have place for entering an actual number as well as a place for a percentage.2015-09-01 17:23, By: Jerry, IP: [188.8.131.52]
L2: New sepp question.Taking the distribution is cash makes it very simple to match the exact amount to be distributed under the SEPP. Doing an in kind distribution where shares are transferred to a taxable account will often result in missing the exact amount on the high or low side, which will bust the plan or at least result in the IRS deciding if they will pass a very small difference resulting in fractional share valuations.
Even if the form has a place to enter the valuations and %s, it is risky to expect a clerical person to understand exactly what you need to do to have the SEPP comply. If you want to distribute most of the SEPP distribution in kind, I would do it in two steps. First have the in kind shares distributed in a manner that will meet around 95% of your distribution. Then when you have confirmation of the value that wasdistributed, initiate a cash distribution for the rest of your SEPP distribution, and you should end up with the correct total amount. But even this has more risk of error than raising enough cash in the IRA and then distributing cash.
You will have a 5 year plan. For 2015 you can take out either 1/3 of your annual distribution or the full annual distribution.
2015-09-01 18:21, By: Alan S, IP: [184.108.40.206]
L3: New sepp question.If you still have a 401-K or 403-B, it is not necessary to set up a SEPP 72-T plan, and you should not have rolled anything over to an IRA from either of those types of plans because you were or will be 55 in the year of termination of service from your employer.2015-09-01 18:39, By: dlzallestaxes, IP: [220.127.116.11]
L4: New sepp question.I wish my 401k rules would have permitted that.2015-09-01 18:57, By: Jerry, IP: [18.104.22.168]
L5: New sepp question. Same here Jerry, when I left the company at 55 and 35 years of service, they too would not allow me to draw from my 401K. Had to roll it over.2015-09-01 19:31, By: Chris, IP: [22.214.171.124]
L6: New sepp question.I hope that neither of you had significantly appreciated employer company stock in your 401-K that you rolled over to your IRA. If the company had made its matching contributions in company stock, or you had bought company stock in your 401-K, then you probably should have used the special tax provision called NUA (“NET UNREALIZED APPRECIATION”).
If the company did not explain that provision and did not give you an opportunity to save a lot of taxes, they may have been negligent in their responsibility to inform you accordingly.2015-09-01 20:03, By: dlzallestaxes, IP: [126.96.36.199]
L7: New sepp question.Doh!! For me there was only a nickel in company stock. I think it was some remnant of a defunct esop fund or something.
I will see what sort of cash fund is available and move some money in that direction.
Thanks for the input.2015-09-01 20:34, By: Jerry, IP: [188.8.131.52]
L8: New sepp question.No company stock in mine either.2015-09-02 00:35, By: Chris, IP: [184.108.40.206]
L6: New sepp question.My company does not allow distribution either, “However” when I transfer my money to an IRA to do the 72T, I am allowed to take a 1 time 55 Rule and not be penalized. In other words, when they transfer my $ to the IRA, I am taking a % to me and claiming the 55 rule. Lets say I have $1,000,000, I ask my 401k company “Vanguard in this case” to send me $100,000 and put $900,000 into my IRA for the 72T distribution. I claim the $100,000 as my 55 Rule as I have not yet started my 72T yet, and then start my 72T at a later date. That is my understanding anyways per what I have read and per Vangaurd. Good Luck2015-09-04 05:00, By: Spark, IP: [220.127.116.11]