over payment from sepp

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L1: over payment from seppMy wife (12-6-62) has a sepp that began in March of 2015 and took distributions back to Jan. of 2015. I just found out that the custodian made 13 monthly payments instead of 12. Can she refund the month 13 distribution to prevent the 10% penalty? This is her first year for the sepp. Thank you.2016-01-26 20:28, By: pj, IP: []
L2: over payment from seppSEPP payments are based upon each CALENDAR YEAR. They must be the same every year, except the first and last.
What was the balance that you used in the calculation, and the interest rate ?
Technically the 2015 distribution must be either 100% of the annual distribution, or 10/12 because she started in March. You seem to be saying that she/you intended to take the full annual distribution, which is why you said the custodian went back to January.
He obviously does not understand what a SEPP is, nor how it works. Either he did that on his own, or someone told him to start the monthly payments 2 months before the plan started. I would repay the 13th payment for 2015 provided that you get the firm to acknowledge in writing that they screwed up, and will pay all taxes, penalties, and interest if the IRS assesses you. Also, they have to agree to report to the IRS on form 1099-R the correct figure net of your repayment. If they refuse to do this, pay the 10% penalty for 2015, terminate the original SEPP, AND MOVE HER ACCOUNT TO ANOTHER COMPANY, and start a new SEPP.2016-01-26 20:43, By: dlzallestaxes, IP: []

L3: over payment from seppThe balance for the calculation was $549840.39. Interest rate was 2.1%. She intended to take the full distribution which was 24090.90 or $2007.58 per month which is the frequency of her distributions. The deposit was to be made into her bank account on the first of the month but because the custodian took it out of her account on the 31st to be in her bank on the first, it showed up as an extra distribution on the year end statement. I have talked to the custodian (Schwab) and they will not do anything about it on their end. They seem to think that she has 60 days to repay the overage.
Does she only pay the 10% on last years distribution or would she have to pay on any distributions for this year? Also, will she have to start a new SEPP?
Thank you for your info.
.2016-01-26 20:58, By: pj, IP: []

L4: over payment from seppNever set up a first of the month distribution for a SEPP because of this very type of problem. Change the withdrawal date for the SEPP to somewhere between the 5th and 15th of each month starting in Feb or March.
The 60 day rollover is the solution if the 2015 1099R shows 13 months of distributions. Send a check for the extra month back to Schwab to deposit in the same IRA account as a rollover contribution. She cannot have done a previous IRA rollover for the 12 months prior to the distribution being rolled over since the one rollover limit for all IRAs is now in force.
The 1099R will show the 13 months worth and will not be corrected, but on your joint return show a rollover on line 15b of Form 1040 so that line 15b only shows the correct 12 month figure. This will resolve the problem and she should not be hearing from the IRS.
But be very careful in making the distribution date switch going forward. Wait until the 1/31 distribution is made, then move the date forward a couple weeks. Schwab counts the 1/31 distribution as the first for 2016, the second will be moved back from 2/29 to 2/15 or so and then each month’s distribution will be done by the middle of the month. This also allows time in December to check the annual total and if short to make one last distribution. Just be careful in making the date transition so that the error does not repeat itself in 2016.
To be clear, if she does the rollback her SEPP will be fine and there will be no penalty. She will also only be taxed on the correct amount for 2015 and will keep the original SEPP plan.
2016-01-26 22:19, By: Alan S, IP: []

L4: over payment from seppYou should never set automatic distributions for the first few days of any month because they will always arrange to send it early if there is a weekend involved.
Similarly, if you look at our recommendations, never ask for distributions after 12/15 because they can get caught up in year-end transactions at funds and brokers, and if an error is made you may not have time to correct it before 12/31.
A competent rep at Schwab should have warned you of these problems when you set the date as of the 1st of every month.2016-01-26 22:20, By: dlzallestaxes, IP: []

L5: over payment from seppThank you both very much. I will definitely change the distribution date. I thought that the rep that I talked to at the time of the initial change knew what they were talking about. Poor assumption on my part. Again, thank you both very much for the info.2016-01-27 11:10, By: pj, IP: []