Now reading Plan Pointers – here’s my situation – points where i should focus?
L1: Now reading Plan Pointers – here’s my situation – points where i should focus?hi, i am building a residual income opportunity that is accelerating my interest in leaving corporate america. i have not been planning to begin my SEPP withdrawals until 54 years old or later. But, at 48 I am considering taking action sooner.
i’ve read on this board about people suggesting to find a tax advisor familiar with SEPP. in my experience, fewtax advisors in my area are familiar with this stuff! this board is awesome and i’m glad i am aware of it.
if anyone would like to direct me to a tax person who could advise me on this and real estate transactions,or if you are such a person… i’d love to do business with you. historically i have done my own taxes, but i’ve come to realize i could benefit from a professional.
Here’s where I stand:
TD AMERITRADE IRA – $1,300,000
TD AMERITRADE INVESTMENT ACCOUNT – $210,000
MORTGAGE DEBT (homestead and 2 occupied investments) $480,000
Net equity on above (conservatively) – $80,000.
EMPLOYER 401K – $15,000 (Just started new job… sweet match, but i’m only into this for about 8 months)
my age – 47
not married – spousal equivalent makes her own money
no revolving credit, less a 1000 bucks on occassion due to home depot’s 6 months same as cash offers.
1 car loan – 9500 balance… 2.99%
i’m about to read the ‘planning pointers’. any things i should pay particular attention to, would be greatly appreciated. Thanks!2012-06-10 16:09, By: NJONGE01, IP: [22.214.171.124]
L2: Now reading Plan Pointers – here’s my situation – points where i should focus?I assume that you are planning to separate from the new employer sometime soon or there would usually not be a need to consider a SEPP at this time.
A 12year SEPP is a much longer time period than the usual term, and planning for contingencies over that long a period is loaded with pitfalls. If you need to bust the plan in the later years, there will be many years of retroactive penalty and interest to pay. Not to mention the fact that removing 4-5% of the balance you choose for your starting balance with drain a considerable amount from your plan over 12 years.
As a possible option, if you have highly appreciated employer stock in your old plan, you can consider NUA options under which you can distribute the shares to a taxable account, pay ordinary taxes on the cost basis and the lower LT cap gain taxes on the appreciation when you choose to sell the shares. Sale of such shares could tide you over for awhile and delay the inception date of any SEPP plan. That would shorten the plan and make planning easier.
If you start a plan and then take new employment, you can reduce your payout by a rough estimate of 40% if you make the one time switch to the MD method. Or if the new employment is soon enough, you could just bust the plan and the penalty would only apply to the limited distributions taken to date.
And if you keep the new job and think you may stick it out to the year you will reach 55, you can roll your IRA into the new plan (but not if you have an active SEPP) if the plan will accept rollovers, and then when you separate at 55 you can take distributions directly from the 401k plan penalty free, and that would get you to 59.5 without penalties.
Finally, if you do not need your entire IRA balance for a SEPP plan, you can partition the IRA into two accounts with one of them generating the SEPP distribution you need. The other account could be reserved for emergency needs or to start a second SEPP plan at some point in the future if you need more funds. You can have more than one SEPP plan with each one operating independently of the other.
2012-06-11 03:36, By: Alan S, IP: [126.96.36.199]
L3: Now reading Plan Pointers – here’s my situation – points where i should focus?Alan’s response is a great summary of the various aspects and nuances to consider.
More importamtly it is the reason that you should consider using a professional to assist you in this PLANNING PROCESS. The planning is more important than the actual execution of the plan.2012-06-11 17:08, By: dlzallestaxes, IP: [188.8.131.52]
L4: Now reading Plan Pointers – here’s my situation – points where i should focus?I am definitely planning to “split” my IRA into 2 Accounts.
Does it matter which of those 2 would be the SEPP? Do I create a new account as the SEPP and transfer into that, or would the original IRA be the SEPP? Perhaps it does not matter.
I agree that 12 years is a long time. As my other entrepreneurial opportunity materializes, I would like to know if using early W/Ds from an IRA as part of my net “income”, is viable.
The only professional I know of regarding SEPP is William J. Stecker, and we’ve been in touch via email.2012-06-12 19:39, By: NJonge01, IP: [184.108.40.206]
L5: Now reading Plan Pointers – here’s my situation – points where i should focus?Since you already have an IRA and are not doing an employer plan rollover, it really does not matter whether you use the original or the new IRA for your SEPP, since trailing dividends from an employer are not an issue. But verify with the IRA custodian that there will be no automatic transfers between the accounts.
Stecker is a true expert on SEPPs, you probably cannot do any better.
Not sure if I understand your question regarding early IRA withdrawals. If you have a SEPP in place, withdrawals from that IRA are penalty free and technically not “early”. However, if you need more than your SEPP payout you could tap the other non SEPP IRA, but that would cost an extra 10% plus the higher marginal rate when both the SEPP and other IRA taxable income is added together. You might possibly qualify for another penalty waiver for some of the non SEPP IRA distributions. Obviously, you cannot increase your SEPP distributions from that IRA or the plan is busted. You might consider taking out the full annual amount in your first SEPP year rather than pro rating to pad your other savings with more penalty free money if you have potential need for that money.
2012-06-12 22:33, By: Alan S, IP: [220.127.116.11]