Pro-rated first/last yr vs. full annual distribution

You are here:
< Back

L1: Pro-rated first/last yr vs. full annual distribution
I’ve been lurking and learning for a while, and now it’s time to start asking some questions. I’ll be retiring March 31 at age 52 (birthdate 9-1-1959), then rolling over my 403b to an IRA, and starting a SEPP, using the ammortization method, in April or
May of this year (depending on how quickly I can get all the paperwork done). I’d prefer to take monthly payments, and I don’t need a full year’s distribution this year since I earned my full salary for the first 3 months of the year. My question is: is
it REALLY Ok to take 8/12ths of the annual distribution in the first year (assuming my first distribution is mid-May), and 2/12ths in the last year (2019; my modification date should be 3/2/2019) instead of taking full annual distributions? It seems like
taking partials vs. full could result in a big difference in the overall amount distributed over the course of the SEPP, and I guess I’m surprised that the IRS doesn’t seem to care about that. Thanks for the excellent info on this site.
2012-02-14 18:05, By: BonBaz, IP: [128.196.83.52]

L2: Pro-rated first/last yr vs. full annual distribution
For the first year of your plan you can either distribute the full annual amount or a pro rated amount based on the month of your first distribution. 8/12 of the annual would be correct as the pro rate option when your first distribution occurs in May.
For your last year in 2019, you have 3 choices prior to 3/2, 2019:
1) Take out full annual amount
2) Take out a pro rated amount of 2/12 of the annual
3) Take out nothing in 2019
Obviously, you can wait until 2018 to determine what you will do in the first two months of 2019, and it would be a good idea to re check if the above still applies at the time. Things can happen in 7 years.
With respect to the 2012 options, you can always take out the pro rated amount and when you get to early December you can decide whether to stick with that or take a larger distribution to bring you up to the full annual. With respect to 2012 taxes, you
will save by going pro rate. However, if it starts to look like you might need some padding for inflation over the 7 year period, it presents an opportunity to take more out penalty free and save it for unexpected needs.
2012-02-14 21:15, By: Alan S., IP: [24.116.67.233]

L3: Pro-rated first/last yr vs. full annual distribution
Alan… you beat my post by about 30 seconds! Have a really great day
2012-02-14 21:18, By: Gfw, IP: [205.178.73.77]

L3: Pro-rated first/last yr vs. full annual distribution
Since 7 years is a long time, and needs can change, your 2012 tax situation is critical to review. If you will be in the 15% tax bracket, then consider taking the full annual distribution if that will still keep you in the 15% bracket. Then you can set that
aside for future emergencies over the next 7 years.
If you are in the 25% tax bracket, and the full annual distribution will still be in the 25% tax bracket, then the above comment still holds true.
You could also set up > 1 SEPP 72-T plan by separating your IRA into 2 or 3 accounts. Then start 2 SEPP 72-T plans, at different times during the year. Keep any excess not needed to establish these plans to provide the income you need, in a 3rd account,
for use in future emergencies, even if subjject to the 10% penalty. This will protect you from busting either of the other plans in an emergency.
2012-02-14 22:08, By: dlzallestaxes, IP: [96.227.217.194]

L2: Pro-rated first/last yr vs. full annual distribution
There have been several PLRs that have used a stub years in the first year – just remember that in the first year, you can either take the full amount or a pro-rated amount based on the month of the 1st distribution. The risk of a problem with teh IRS
is very low.
Since you aren’t hampered by the 5-year rule, in the last year you have three options:

Take the full annual amount; or Take a pro-rated amount; or Take nothing since you will be age 59.5 in the final year.
2012-02-14 21:17, By: Gfw, IP: [205.178.73.77]

L3: Pro-rated first/last yr vs. full annual distribution
Thanks, everyone, for the great advice. I’ll probably have a couple more questions between now and April, and really appreciate the help.

2012-02-15 14:39, By: BonBaz, IP: [128.196.83.52]