Our SEPP

L1: Our SEPPThank you so much for this board. What a wealth of information. Here”s our plan:
1. I”m 53(Feb) and wife is 47. Will use LE of 31.4 years.
2. Amortization method, single LE.
3. Interest rate-6.13.
4. Account balance of $833,458(with other IRAs for emergencies)as of 8/31/07.
5. Annual payment of $60,421 which we can take either in full, monthly, or 1/3 of total.
6. Money is pretty evenly split between Schwab and Vanguard and will take from the former.
7. Taxes are due in full by next April 15th.
Does this look OK? Is there anything else we should be concerned with? And can an HSA be started with unearned income?
Thank you again.

2007-09-22 05:10, By: billy, IP: [68.59.47.247]

L2: Our SEPPHello Billy:
Everything looks fine; however, I would like to comment on #7.Your “tax return” is due on 4/15/xx; your tax payments are due on a different schedule. You must make quarterly estimated payments (using 1040ES) on4/15, 6/15, 9/15 and 1/15 of each year corresponding to the quarter just concluded. Your estimatedtax payments are based on your total tax liability picture not just your SEPP withdrawals. As an alternate, you can request the trustee to withhold X% ofeach distribution. If you fail to make estimated payments you will be subjected to a 10% (I think) under-withholding penalty.
TheBadger
wjstecker@wispertel.net
2007-09-22 06:10, By: TheBadger, IP: [72.42.67.61]

L2: Our SEPPYes, you can contribute to an HSA without earned income. You could use your SEPP distributions as a source for the HSA funds, but DO NOT attempt the new direct transfer to an HSA. Although the HSA is not a retirement plan, there is no reason toassume the riskof abusted SEPP from a direct transfer when you can simply write a check to the HSA from your checking account and take the deduction.
And – just for the record, when you referred to this as “our SEPP”, a small red flag went up. Technically, the SEPP is either yours or hers even if you live in a community property state. The 833,458 account balance can be composed of any number of your IRA accounts or any number of your wife”s, but it cannot contain IRA accounts for both of you. If you both had IRA accounts that needed to be tapped, you would need two totally separate and independent SEPP plans. Your emergency IRAs outside the plan however can be titled to either one of you. You probably did not combinethe SEPP accountshere, but thought I should mention the issue just to be sure.
Last I knew Schwab was one of the few IRA custodians that still provided the exception coding on the 1099R. If you get that code (02), you will not need to attach a 5329, but more importantly, the coding probably reduces the chance of an IRS inquiry by some degree, even though it is not conclusive that you have a valid SEPP.
2007-09-22 11:47, By: Alan S., IP: [24.116.165.60]

L2: Our SEPPHello Badger and Alan,
Your thoughtful responses are very much appreciated.
I did not realize we would have to make quarterly estimates. If we took the full amount this year and had no tax liability for 2006 and none for 2007 to this point, when would our first payment be due?
Good advice on the HSA. “Our SEPP” is misleading as it is actually my SEPP and my wife”s account is what we are keeping separate. Thanks for catching that.

Best regards,
Billy

2007-09-22 12:37, By: billy, IP: [68.59.47.247]

L2: Our SEPPActually, you will not be penalized because you have met the “safe harbor” of having paid in an amount equal to your 2006 tax liability, which was -0-. However, while you can wait and pay your full 2007 tax bill next April, that will take some budgeting. And for 2008 your safe harbor will be based on your 2007 tax liability, so you would need to pay estimates in 2008 with the first one due on 4/15. This adds up to your full tax liability for 2007 and 25% of your 2008 tax liability all due on the same date. That”s OK if you have the funds available, and you will have earned interest in the interim rather than the IRS.2007-09-22 20:36, By: Alan S., IP: [24.116.165.60]