other IRA”s ok to touch

L1: other IRA”s ok to touchI retired 1/04/04 at age 49 and rolled over my 401k and my pension to a IRA which I am currently taking sepp monthly payments. I also have 3 other IRA in a different institution that are non deductable.Now question I took $11,000.00 out of one of those ira”s without paying the early withdrawal tax.This will not effect my sepp payments, correctt. 2006-07-18 12:05, By: tc, IP: [70.132.6.184]
L2: other IRA”s ok to touchIf the other IRAs were not included in the SEPP, making withdrawals from them will not impact the SEPP.
With that said… you state that the other IRAs are non-deductible. You may want to re-read IRS Pub 590 regarding the taxable/non-taxable calculations on any IRA withdrawals – SEPP or other when there are non-deductible contributions in your IRA. 2006-07-18 12:45, By: Gfw, IP: [74.136.84.204]

L2: other IRA”s ok to touchI concur with Gfw.You should become very familiar with IRS Pub 590, and IRS Form 8606. It sounds like you have a problem of reporting the correct taxable amount of your IRA withdrawals.
When you say that your other 3 IRA”s are “non-deductible,” I will assume they are NOT Roth IRA”s, but Traditional IRA”s that you funded but couldn”t take the annual income deduction, and for which you filed IRS Form 8606 each year of these non-deductible contributions. Please confirm.
If any of these other IRA”s are Roth”s, there is no impact. However, if any are Traditional, non-decuctible IRA”s, then you have to include their values / cost basis when calculating taxability of distributions from your SEPP Plan IRA”s, even if you don”t take any distribution from either of the three non-SEPP Plan IRA”s. Form 8606 is used to calculate the non-taxable portion of withdrawals.
It sounds like you have probably made a very common mistake based on the faulty assumption that you can take “tax-free distributions” from your “non-deductible IRA”s” while only paying taxes on the “deductible IRA” distributions under 72(t). You have to aggregate all Traditonal IRA”s to calculate the tax liability.
Now the good news (I think) is that if you paid tax on 100% of your 72(t) distributions and did not include the Non-taxable Traditional IRA”s using Form 8606, you might be due a refund by filing an amended return.
Bottom line … get help from a qualified tax preparer, most probably a CPA with a good working knowledge on this subject.
Jim2006-07-18 15:43, By: Jim, IP: [70.184.1.35]

L2: other IRA”s ok to touchThe good news is the $ 11,000 withdrawal from the non-SEPP 72-T accounts will not “bust” your plan.
ON THE OTHER HAND, HOWEVER, YOU DO HAVE A MAJOR PROBLEM !!!!!
Even though you made “non-deductible contributions” to separate accounts does not mean that distributions from those accounts are “non-taxable”. I”ll try to briefly describe this complex area, disregarding ROTH IRAs because they are different from the other IRA accounts.
1. There is no such thing as a “Non-Deductible IRA Account.”
2. When you file your tax return, you can designate what portion of contributions to 1 or more IRA you are considering to be “non-deductible” because you were either ineligible for the contribution to be “deductible” on your tax return, or you elected to classify it as “non-deductible”. In either case, you were required to file IRS Form 8606 for each year in which you made a contribution to any IRA account when you elected to designate any amount as a “non-deductible contribution” for that calendar tax year.
3. Earnings and growth in any IRA account is not taxable so long as there are no withdrawals from any IRA account.
4. When you take a withdrawal from any IRA account, you must make a calculation to determine the amount of the distribution that is taxable. The numerator of the fraction is the TOTAL NON-DEDUCTIBLE CONTRIBUTIONS that you have made cumulatively over the years, and supported by the figure reported to the IRS on Form 8606. The denominator of the fraction is the TOTAL VALUE OF ALL IRA ACCOUNTS (other than ROTH IRAs) as of 12/31 of the preceding years. This fraction is calculated even if all of the IRA contributions you have ever made were designated by you as “non-deductible”. This fraction is then multiplied by the distribution(s) taken in any calendar year to determine the “non-taxable” portion. If you follow the IRS logic, even if all contributions of say $ 10,000 were “non-deductible”, and if these IRA accounts were worth $40,000, then 25% ($10,000/40,000) of all distributions would be non-taxable, but 75% would be TAXABLE (i.e. the $ 30,000 of income and growth in the account(s)).
5. These means that most of the $ 11,000 you withdrew from your “non-deductible IRA account is not only taxable, but is also subject to the 10% penalty for early withdrawal before 59 1/2. Transferring your 401-K to an IRA was probably the worst thing you could have done in this regard. Let me explain. If you had only the “non-deductible IRA accounts”previously, had contributed $ 10,000, and withdrawn $ 11,000 when the account was worth $ 20,000,then you would have been taxed on the $ 5,500 ($11,000 x $10,000/20,000), plus $1,100 penalty (10% x $ 11,000) for early withdrawal. By transferring the 401-k to any IRA (existing or new account), you significantly increased the denominator in the “non-taxable” fraction, and thereby significantly reduced the “non-taxable” exclusion and conversely increased the taxable portion. Furthermore, the SEPP 72-T is an IRA account, and its total value is included in the denominator in this calculation.
6. It will be a small consolation, but using the calculation above, a small portion of your SEPP 72-T payments are actually non-taxable based upon the factor of “non-deductible contributions”/”total of all IRA accounts”.
If you were misinformed or ill advised by an accountant or financial advisor, you might have legal action against them for professional negligence. If you did this on your own, this is the expensive price you are going to pay for not seeking professional advice. You “might” get sympathy from the IRS if you quickly met with them, with a qualified professional tax advisor, explained your erroneous actions, and see if they will allow you to reverse the transaction by repaying the $ 11,000 to the non-SEPP 72-T IRA account. You may require a “private letter ruling”.
2006-07-18 16:09, By: dlztaxes, IP: [4.175.9.9]

L2: other IRA”s ok to touchDo the above calculations only apply to IRA withdrawlswith “NonDeductible Deposits”?
I have 3 IRA”s from roll-over 40lK”s & Lump Sum Distribution (pension). I started a 72T this year from1 of the IRA”s but am not planning to make any withdrawls from the other 2 IRA”s until after 59-1/2. I understand all withdrawls this year (& the next 4 years) from the 72T are taxable, but there will be no 10% penalty.
If I withdraw from the other two IRA”s after 59 1/2, but before completion of my 5 year SEPP program, since there will be no 10% penalty on those withdrawlsas well as the 72T, will there be special calculations where the IRA”s will have to be aggregated? I just thought I would pay tax on all the withdrawls added together.
I thought I understood the process until I read this post and now am totally confused. None of my IRA”s have after tax money in them.
Any help in understanding this situation would be appreciated.
meb242006-07-18 19:04, By: meb24, IP: [71.230.92.4]

L2: other IRA”s ok to touchMeb24 – you should have no problem. You are ok to use one IRA to do a SEPP and haveone or more non-SEPP IRAs.
The aggregation rules discussed above are aplicable to non-deductible contributions and span all IRA accounts to determine the taxable and non-taxable amounts of the withdrawals taken.
Hope this helps :~}2006-07-18 19:18, By: Gfw, IP: [172.16.1.74]

L2: other IRA”s ok to touchGfw – Thanks for the quick response.
One other thought — If I needed to make a withdrawal from one of the non-SEPP IRA”s before 59 1/2, am I right in that I will pay ordinary tax on the SEPP withdrawal for that year & the withdrawal from the non-SEPP IRA with an additional 10% penalty only the amount of thenon-SEPPwithdrawal? Just want to clear things up in my mind (need reassurance) – I thought I had all my ducks in a row before I started the SEPP earlier this year.
Thanks, meb242006-07-18 19:40, By: meb24, IP: [71.230.92.4]

L2: other IRA”s ok to touch>>am I right in that I will pay ordinary tax on the SEPP withdrawal for that >>year & the withdrawal from the non-SEPP IRA with an additional 10% >>penalty only the amount of thenon-SEPPwithdrawal?
Yes.2006-07-19 04:17, By: Gfw, IP: [172.16.1.74]

L2: other IRA”s ok to touchmeb24:
Didthe Lump Sum Distribution from the pension include “Employer”s Stock” ? If so, I hope you took it as a taxable distribution, and did not make the mistake of rolling it over into an IRA, with your 401-K.
The “Net Unrealized Appreciation” (NUA) on employer stock in a Lump Sum Distribution is a fantastic tax saving situation. If you did not roll it over, then it is in a “regular” brokerage account. You can either sell some of those shares, or set up your account as a “margin account”, and borrow against it, rather than taking distributions from your IRAs. The sale of the stock is taxable at 15% long-term capital gains tax rates, compared to 25%-35% regular income tax rates on IRA distributions and the 10% penalty before 59 1/2.
I saved a client $100,000 in income taxes by planning the timing of these techniques.2006-07-19 14:06, By: dlztaxes, IP: [4.175.9.12]

L2: other IRA”s ok to touchdlztaxes:
There wasNO Company Stock involved with Lump Sum Distribution — Total Cash-Out Rolled over to IRA, then split into two separate accounts with same brokerage. (I use one of the accounts as my Sepp Account).
The 401K was rolled over to an IRA with adifferent brokerage. I do not plan to use either of the non-SEPP IRA”s before 59 1/2 (actually only 2 years away), but they are there in case of an emergency. Hopefully, I won”t have to make any withdrawals while the SEPP is in place. At that point, Social Security will kick in & I”ll be able to make withdrawals as needed from any of the IRA”s (THAT”S the PLAN).
meb242006-07-19 18:38, By: meb24, IP: [71.230.92.4]

L2: other IRA”s ok to touchmeb24:
If I have the facts straight, you just started your SEPP 72-T at 57 1/2.After 5 years of these withdrawals you will be 62 1/2, and will start taking your Social Security benefits.
The “break-even” age on early SS benefits is about 78. But take a look at the interaction of other taxable income and TAXABLE Social Security benefits to see what the effective tax rate will really be on your SS benefits if you do or don”t take any, or some, retirement benefits. Or, take more retirement benefits and delay your SS until 66. You have plenty of time to play with the figures. You may be able to pay taxes at 15% rather than 25% on your retirement benefits, or -0- on Social Security benefits for a few years, by delaying the retirement benefits.
Obviously, a major factor is your cash flow needs. Remember, your non-retirement investments should also be factored into this analysis, especially because capital gains are taxed at only 5% if you are in the 15% or lower, tax bracket.2006-07-19 20:48, By: dlztaxes, IP: [4.175.9.100]

L2: other IRA”s ok to touchdlztaxes:
Basically all investments are in the 3 IRA”s except for a small emergency fund (Short-term CD”s & checking & savings accts). I”m sure we”ll be in the 15% or less taxbracket for at least the next few years.Husband expects to work for another 2 years or so (presently 56 1/2). When we start collecting SS at 62 I”m pretty sure we will not have enough income for the SS to be taxable. (We will plan our income (withdrawals from IRA”s)accordingly).
We have no CC debt and by then all major expenditures will be paid off:(College Loans, Mortgage & Vehicle Loans) & we should be able tomanage onboth SS checks & small withdrawals from the IRA”s if needed. We will probably withdrawal the maximum each year that willkeep taxes at the lowest rate possible & then reinvest any excess.
When husband retires he will have the same situation (LUMP SUM distribution & 401K) – Depending if the Company makes an early retirement offer he may leave sooner than the 2 to 3 years he is planning on now. If that”s the case then he will have to also start a 72-T account before 59 1/2. If it”s close to the 59 1/2 & I”m already 59 1/2 at that time, we”ll probably just withdrawal from one of my non-SEPP IRA accounts so that he will not be tied up for 5 years with the 72-T
I havea fewyears to figure it all out — hopefully all will go as planned.
BTW: I”ve read your other post re: PA STATE TAX on 72-T withdrawals. My understanding is that I will pay PA State Tax on my withdrawals until age 59 1/2 and then there is no longer any State Tax on the withdrawals I make from any of the IRA”s. I presentlymake a Quarterly Estimated Tax payment to the State.
Thanks for all your insight.
meb24
2006-07-19 22:48, By: meb24, IP: [71.230.92.4]