Previous non SEPP distribution
L1: Previous non SEPP distributionI am starting a new SEPP plan with the first annual distribution on 10-July-2014. My date of birth is 22-Jan-1958.
My question is this. I previously took a non SEPP distribution earlier this year. Will this create a problem since this year I will report a larger annual early distribution on my taxes even though only part of the distribution will be a result of the SEPP. I am not treating this year as a stub year.
Thanks2014-07-10 09:38, By: pigtail, IP: [18.104.22.168]
L2: Previous non SEPP distributionIf it isn’t too late, why are you starting a SEPP 72-T that will lock you in for 5 years ?
Don’t you have any alternatives to get you thru the next 3 years until you are 59 1/2 ?
Are you using all of your IRA account(s), or do you have a separate emergency fund to minimize the chance of your busting the plan before 7/11/2019 ?
Since you are over 55, did you “separate from service” from a company where you have a 401-K , and will they allow you to take partial distributions ?
Did you work for a company who had a 401-K or other retirement plan where they matched your contributions to some extent using their company stock, or did you invest in their company stock in their plan ? If either one, and the stock increased in value over the invested cost, then you should investigate the NUA (Net Unrealized Appreciation) aspect with them TODAY !!! It could eliminate the need for a SEPP 72-T also, and provide you with a tremendous tax savings becuase of the special IRS tax provision for NUA’s. (See other related postings on this website, or IRS publication 17 or 575, IRS Notice 98-24, or google “NUA”.)
In answer to your question, it should not be a problem, but the prior distribution is subject to the 10% penalty.
1. When did you take the distribution, and how much ?
2. How much is your IRA account balance ?
3. How much will your annual distribution be ?
4. If your annual distribution is more than what you took already, have you considered using the prior distribution as part of your 2014 annual distribution, and start your SEPP 72-T earlier than now ?2014-07-10 13:23, By: dlzallestaxes, IP: [22.214.171.124]
L3: Previous non SEPP distributionNo. I am only using one of my accounts for the SEPP. The answers to all your other questions is no.
I am using an account valuation as of close of business 30-June-2014 and the May 120% mid term rate of 2.31%.
The annual distribution of 12,455.19 is less than the 13K I have already taken earlier in the year. Therefore, I can not apply the previous distribution as part of the SEPP distribution. I will just have to pay the 10% penalty.
If you have any other thoughts please let me know.
Thanks2014-07-10 13:38, By: pigtail, IP: [126.96.36.199]
L4: Previous non SEPP distributionIf you do not NEED additional money this year, you could choose ANY DATE from 12/31/2013 thru the date of your first distribution if the balance on that date would have resulted in an annual distribution amount of $ 13,000 or more.
This would avoid the $ 1,300 penalty.2014-07-10 13:48, By: dlzallestaxes, IP: [188.8.131.52]
L5: Previous non SEPP distributionMy balance for the year was highest on 30-June that is why I chose that date. Believe me I would love to avoid the penalty. I gather from all the responses that this previous early withdrawl will not affect the SEPP. Am I correct?
Thanks2014-07-10 16:15, By: pigtail, IP: [184.108.40.206]
L6: Previous non SEPP distributionIt will not affect the SEPP, but the IRS might be confused by your return since you will have to report total distributions on line 15 that exceed your SEPP distribution. You will probably need a 5329 to indicate the SEPP exception to the penalty because the custodian will probably issue a combined 1099R coded 1. You might qualify for a different exception for the non SEPP distribution, so check out all the exceptions that apply to IRAs to see if any apply to you. If not, the portion of your distributions that exceeds the 5329 penalty waiver codes will be subject to the 10% penalty. I would also include an explanatory statement with your return to outline the date and amount of the non SEPP distribution, the starting date for the SEPP and the total SEPP distributions.2014-07-10 16:56, By: Alan S, IP: [220.127.116.11]
L7: Previous non SEPP distributionYou could avoid most, if not all, of the confusion for IRS by transfering your entire IRA account to another account. Then take your SEPP 72-T distributions from the new account.
Then 2 separate 5329 forms would be used, but it would be clear as to the effect of each one. This will save possible/probable extensive correspondence and professional fees.2014-07-10 17:23, By: dlzallestaxes, IP: [18.104.22.168]