L1: New SeppI was born in 1958 and am 57 years old. I have recently retired from my previous employer due to a lay off. I created a Roll over for a business start up with my 401k from my previous employer. I have been unfortunate in finding a business to startup, however, I have found a business that is in distress due to illness of the owner. I have about 695,000 in the 401k set up as a roll over for business start up. I would like to open a IRA account with TD Ameritrade and do a direct roll over with half of this amount, or about 345000 to set up a SEPP distribution of 16000 per year beginning on January 7, 2016 and keep the other half in the roll over for a business startup 401k to purchase and operate the business. I know nothing about how to do this. Is this possible, and how do I start it?2015-12-19 01:07, By: Maru, IP: [18.104.22.168]
L2: New Sepp1. If your employer would have allowed it, you should have left your 401-K alone, and not rolled it over to an IRA. You would have been able to take any distributions you wanted to take without any 10% penalty. But, too late now.
2. If there was any employer stock in your 401-K, either from the employer contributions or purchased within your 401-K from your own contributions, then you should have been advised by your employer to get professional advice about the NUA tax provision. ( I saved a client $ 100,000 in taxes by using this Special Tax Provision.) But, again, too late now.
3. Are you now talking about funding a new business venture within your IRA in what is called a Self-Directed IRA using the ROBS approach ( “Rollovers as Business Start-ups”) ? If so, I suggest that you google “ROBS”, and read the IRS ROBS PROJECT report on how the IRS is investigating/auditing these situations, despite the claims of many promoters of this idea. In addition, I lecture other accountants on all of the reasons that these ventures do not make sense from a tax and retirement standpoint, let alone from a business aspect. ( 80% of all new small businesses fail) Basically, you can have no direct connection with the business under a ROBS approach. Also, all business expenses and depreciation are meaningless or useless because they are within an IRA. And lastly, when you ultimately sell the business, which hopefully has grown in value, you will pay taxes at 25% or more on not only the appreciation, but also on the amount you originally invested, because all distributions from IRA’s are taxed at full IRS rates. This is compared to having a business outside of an IRA, in which case all expenses and depreciation are deductions, saving taxes, and ultimately paying a long-term capital gains taxes at 15% but ONLY ON THE APPRECIATION.
4. At 57, if you forget the ROBS approach, and are looking only at the SEPP to start to fund your retirement, I would strongly recommend that you consider all alternatives to get you to 59 1/2. After then there is no limit as to how much you can take from your IRA each year. If you set up a SEPP 72-T, you are locking yourself into a fixed annual amount ofr the next 5 years, until you are 62.
5. Answering your last question, start by talking to a tax or financial advisor about various ways to fund your retirement NOW.
2015-12-19 02:55, By: dlzallestaxes, IP: [22.214.171.124]