Planning Ahead for End of SEPP

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L1: Planning Ahead for End of SEPPExisting SEPP
DOB: 11/02/1954
First Distribution Date: 02/10/2011
First Modification Date: 02/11/2016
Distributions: Monthly (the 10th of every month)
My first year I took a full year’s worth of distributions.
I’m just trying to plan ahead….
I will turn 59 1/2 on May 2, 2014 and the first modification date for my SEPP is 02/11/2016. I have a 2nd IRA that I will start taking funds out of after I turn 59 1/2. (SEPP distribution + XXX.XX from 2nd IRA = Approx. 4% of total value of both IRA’s)
At some point after 02/11/2016 I want to combine these two IRA’s into just one IRA account. If I take a distribution on 01/10/2016 and 02/10/2016, I am assuming that I can combine these two IRA’s anytime after 02/11/2016, plus a couple of days for cushion, without busting my original SEPP plan.
Does this all look OK?
Thanks,
The Red Baron2013-02-15 16:15, By: The Red Baron, IP: [166.137.101.167]

L2: Planning Ahead for End of SEPPOnce the SEPP ends, you can combine the tow IRAs shouldn’t be a problem.
I didn’t do any recalculations, but based on your post, you are in a 5-year plan which requires special planning.
Make sure that you read Arnold v. Comm., 111 TC No. 12 (1998) and see if there are any implications for you. You can do a Google search to get more information.
A while back, I also made a post on a 5-year plan that can be found at http://72t.net/Forum/Post/Details?R=a4c19872-cd00-44ba-bacd-cd047f56844e2013-02-15 20:46, By: Gfw, IP: [205.178.67.189]

L3: Planning Ahead for End of SEPPI read your post about the 5-year plan and the Arnold v. Comm. (I only found a couple of articles on the Arnold v. Comm.)
I not sure if they apply. (I’m not an expert.) I will have taken payments for 61 months.
If it really could be a problem, I could stop the SEPP payments after the 02/11/2016. Since I’ll be over 59 1/2, I can withdraw what I need from my other IRA until the end of the 2016 calendar year. (I actually have more money in that IRA than the one with the SEPP.)
2013-02-16 01:07, By: The Red Baron, IP: [166.137.101.158]

L4: Planning Ahead for End of SEPPEither way would probably work, but given the options I would take only the 60 months to equal 5 times the annual amount.
The Arnold case is over 10 years old, but is still considered the rule to live by on a five year plan.2013-02-16 12:35, By: Gfw, IP: [205.178.67.189]

L5: Planning Ahead for End of SEPPReviewing the plan documentation that I sent when I first started, I had that I would only take the 01/10/2016 payment – that will be 60 months.
But your comment”I would take only the 60 months to equal 5 times the annual amount.” raises another question. As I stated in the post I started the plan on 02/10/2011, but I took the full amount for the first year (not pro-rated). By the end of 2015 I will have taken 5 full annual amounts. But I feel that I am still going to need to take the Jan. 2016 payment – the 60th payment.2013-02-16 14:05, By: The Red Baron, IP: [166.137.101.165]

L6: Planning Ahead for End of SEPPI agreethat your first mod date is 02-11-2016 and by that date you will have satisfied the age 59.5 requirement. If you will need the money in 2016, then by all means continue the monthly payments for January and February, 2016.
I don’t see the fact you took a full year’s distribution in the first year as a problem, unless you then proceeded to take monthly distributions in that same year, in which case your plan is already busted.
On or AFTER your “First Modification Date” of 02-11-2016, you are clear to combine both IRA’s and withdraw any amount you need without penalty.
BTW, if you are only taking 4% from your IRA’s then you are within thecurrent thinking of the maximum withdrawal rate for a sustainable income plan. Of course anything can change whichcould make 4% too much so you will need to monitor your plan for sustainability.
Good luck and it sounds like you have a good handle on your finances.
Jim F2013-02-17 21:53, By: Jim F, IP: [70.184.1.22]

L7: Planning Ahead for End of SEPPWould not taking more than 5 full annual payments from a 5 year plan bust the SEPP prior to 2/11/2016?2013-02-18 19:43, By: Scott, IP: [71.142.136.240]

L8: Planning Ahead for End of SEPPMy opinion, yes. He is taking the equivalent of 6 years payments in 5 years – that’s why I suggested that he reference Arnold v Comm.
Arnold took 5 payments and then a little extra before the end of the 5 years. The IRS seemed to be using fiscal years and not calendar years to determine the 5-year payout.
Maybe this will be a new test case – or maybe the IRS won’t catch. Five year plans can be a little tricky and deserve lots of extra planning.
2013-02-18 20:34, By: Gfw, IP: [205.178.67.189]

L9: Planning Ahead for End of SEPPAh ha! The light has come on, Gordon!
In this instance taking any amount in 2016before the first modification date would appear to bust the plan as you have stated. Had he only taken the prorated months of distribution in the first year could he continue monthly distributions into the last year or 2016.
Sometimes it takes several reads.
Jim F2013-02-18 21:52, By: Jim F, IP: [70.184.1.22]

L10: Planning Ahead for End of SEPPNow I’m more confused than ever.
What shoud Red Baron do? What should his withdrawals be in the year 2015?
2013-02-18 23:08, By: kitsap2, IP: [71.227.187.221]

L11: Planning Ahead for End of SEPPSorry, I don’t really have an answer. Planning after the fact seldom works and options become somewhat limited.
I guess I would take a look at distributions based on calendar year and then take a look at distributions based on a fiscal year starting with the date of the 1st payment.
Arnold v Comm is one case, but as I stated before it is the only case and to the best of my knowledge, it has never been challenged. 2013-02-18 23:15, By: Gfw, IP: [205.178.67.189]

L12: Planning Ahead for End of SEPPI’m trying to understand this planning of beginning and ending points.
My DOB is, 10/24/58, and I am planning on starting an SEPP in March or, April 2013. If my first distribution is March 15th, 2013, and I take a full year’s amount, is the full year from Jan 1st to Dec 31st, 2013?
And then to take the SEPP’s for 2014, 15, 17. When reaching 2018, I turn 59 1/2 on April 24th, which is the longer of the, “5 years or 59 1/2 rule”. My five year date will be March 15th, 2018. My First Modification date will be, April 25th, 2018.
What distributions/amount to I take in 2018?
Really stuck on this one.
2013-02-18 23:36, By: kitsap2, IP: [71.227.187.221]

L12: Planning Ahead for End of [email protected]:
The OP will take a full annual distribution for 2015 to meet the 5 year requirement. What he may not do, to the best of my understanding is take any distribution in 2016 prior to meeting the 5 year date of 2/11/2016. After this date he may do as he wishes.2013-02-18 23:44, By: Scott, IP: [71.142.136.240]

L13: Planning Ahead for End of SEPPThanks Scott, that helps me understand Red Baron’s solution. What I’m confused with are my particular dates. Or should I post this in a new topic?
2013-02-18 23:56, By: kitsap2, IP: [71.227.187.221]

L14: Planning Ahead for End of [email protected],
Someone correct me if I’m wrong?
It would be my opinion that your 59 1/2 birthdate will be in your 6th year from the start of your proposed SEPP. Therefore your conditions are different. After 3/15/2018 you may do one of the following:
1 take nothing at all
2 take the full annual amount
3 take a pro rated portion
Yours is a bit tricky, and I’m sure to be corrected if I’m wrong. You’ll be warned against further distributions after 59.5 in the same calandar year, but I feel if you can document the dates why worry.
2013-02-19 00:10, By: Scott, IP: [71.142.136.240]

L15: Planning Ahead for End of SEPPAgain, Thank you, Scott.
If I do Prorata in 2018, is it for Jan, Feb, and half of March? Or, all three months?
Tom2013-02-19 00:21, By: kitsap2, IP: [71.227.187.221]

L16: Planning Ahead for End of [email protected],
Because you don’t have a 5 year plan your pro rated portion in 2018 would be for the months up to your 59.5 anniversary.2013-02-19 00:30, By: Scott, IP: [71.142.136.240]

L17: Planning Ahead for End of SEPPScott, when you say that I don’t have a five year plan, what exactly does that mean? I haven’t started one yet, should I wait to take the first distribution in April, or May (2013), to simplify things?2013-02-19 00:35, By: kitsap2, IP: [71.227.187.221]

L13: Planning Ahead for End of SEPPI did some more searching and found the full court summary on theArnold v. Comm., 111 TC No. 12 (1998). (It’s amazing that you can do a search with the exact same words and come up with totally different results on two different days.) After reading through the entire Arnold v. Comm. a couple more times I agree with Gfw’s and Scott’s responses that it would apply. At the end of 2015 I should have fulfilled the 5 year requirements and should take nothing in 2016 until after 02/11/2016.
This is why I wanted to ask this now before I get to 2015. I will need to make sure my brokerage house doesn’t make a payment out of the original IRA and use my other IRA for distributions after that. Then sometime after 02/11/2016 I’ll think about combining the two IRA’s.2013-02-19 00:37, By: The Red Baron, IP: [166.137.101.151]

L14: Planning Ahead for End of SEPPRed Baron, please excuse my “butting” in (hijacking). Your situation was a good brain teaser and has helped me immensely. Good luck with your planning, and thanks for your patience! 🙂
Tom2013-02-19 01:13, By: kitsap2, IP: [71.227.187.221]