Question on distributions
L1: Question on distributionsI just turned 56 in August, have a 100K plus annual retirement and have decided to do a SEPP to augment our income. I’ll probably go back to work in a few years, but would like to enjoy (and travel) for awhile. I have approximately $485,000 in my rollover IRA and have a CPA working up my distributions, which I estimate to be around $23,100 annually or $1,925 monthly . My question concerns taking the distributions, which I plan to begin later this year. What are my options on drawing these funds out with a single annual amount or in monthly intervals?2014-09-27 13:39, By: Doug, IP: [22.214.171.124]
L2: Question on distributionsYou are going to be in 5-year plan, not a to age 59.5 plan. A 5-year plan requires a little more planning and could involve both a calendar year and fiscal year watch. If I were doing it, I would take the calculated withdrawal amount annually.
To get the first modification date of your 5-year plan, come back with some exact dates and use our “First Modification Date” caculator.
Another suggestion… after your CPA calculates the annual withdrawal, come back and check his/her calculations with our calculator. Always remember, an IRA is between you and the IRS… any mistakes are you mistakes even if made by a third party. 2014-09-27 15:29, By: Gfw, IP: [126.96.36.199]
L3: Question on distributionsI suggest that you consider your 2014 tax situation and bracket. The amount to be withdrawn in 2014 can be either the full annual distribution, regardless when you start, or a prorated amount depending upon when you take your first distribution.
I believe that there may be differences of opinion on when, and how frequently, you can then take distributions in 2015 and future years. I thought that only the calendar year was used for determining the “annual” limitation, but there may be a change that now the “fiscal year” must also be considered.2014-09-27 15:47, By: dlzallestaxes, IP: [188.8.131.52]
L4: Question on distributionsJust my thoughts… The reason I believe that you have to look at the fiscal year in addition to the calendar year is based on Arnold v Commissioner. He took his 5 annual payments (I believe firat payment was in Nov) and while in a new calendar year, he took another distribution prior to the of the 5th fiscal year. From our FAQ…
Q. Assuming the 5-Year rule, when can payments be modified?A.In 1998, a tax court held that a payment received by a taxpayer after he received five equal annual installments and after he reached age 59-1/2 was a modification of the Substantially Equal Periodic Payments.The Court held that the modification occurred within the 5-year period beginning with the first payment, thus triggering the recapture of the 10-percent penalty tax. The Service argued that the 5-year period began with the first distribution and ran until the end of the 5th year. The tax court agreed – the 5-year period closes at the end of the 5 years beginning with the first distribution, and does not end on the date of the 5th annual distribution.Arnold v. Comm., 111 TC No. 12 (1998).2014-09-27 17:34, By: Gfw, IP: [184.108.40.206]
L5: Question on distributionsI believe that Arnold does not apply in the situations where someone takes the annual distribution in the 2nd calendar year before the anniversary of the first distribution, even though this would mean that they took more than the annual distribution amount in total within a 12-month fiscal year. I believe that someone can use any of the following approaches :
1. Pro-rata first year in either monthly or in a single payment, and then an annual payment in the second year at the beginning of the year, or before the anniversary of the first payment. For example, starting a plan in October with a $ 2,400 or 3 monthly payments of $800, and then taking $ 9,600 as the 2nd year annual distribution in Jan thru Sept.
2. Full annual payment in a single payment in the first year, and then any payments starting before the anniversary of the first payment in the first year. For example, $ 9,600 in October of the first year, and then starting monthly payments of $ 800 in January of the 2nd year.2014-09-27 17:58, By: dlzallestaxes, IP: [220.127.116.11]
L6: Question on distributionsWe are on the same page. I agree with all of your points above. During the first 4 years, there should be no problem with a fiscal year, it really only comes into play the last year whether or not you have attained the age of 59.5.
You just have to make sure that the plan ends 365 x 5+2 days (allow for a possible leap year) after the date of the first payment. 2014-09-27 18:30, By: gfw, IP: [18.104.22.168]
L7: Question on distributionsThis has been a very useful discussion to help me understand my options on taking distributions – realizing this is a 5-year plan and age 59 1/2 is not a factor. I will probably do an annual distribution as was suggested and keep it simple by taking them each year at the same time. However, If I’m understanding what you’re saying on the fiscal year coming into play in the final year, I could take a full annual distribution in November (Not prorated) of this year and the annual distributions at any time during successive calendar years 2, 3, 4 & 5. But, I cannot take any further distributions without risking the 10% penalty until the plan ends using the 365 x 5+2 days after the date of the first payment. Correct?2014-09-27 20:52, By: Doug , IP: [22.214.171.124]
L8: Question on distributionsYou are correct. The first modification date calculator on this site will show your plan modification date, and as a long as you do not take a distribution that is not a SEPP distribution before then, you should be fine.
In the case of Arnold vs Commissioner, Arnold took a non SEPP distribution fully 13 months prior to the month of his first modification date. Not only that, but the IRS probably knew his start date was in 1989 because that would have been year one of his claiming the SEPP exception. If his start date was in 1989, there is no way his 1993 1099Rcould exceed his annual SEPP distribution without busting his plan, so the IRS did not even need actual distribution dates and amountsbeyond what they automatically receive on his tax return and his 1099R.
The tax opinion in the Arnold case really has just one lesson which was evident all along, that you cannot take a non SEPP distribution before the plan modification date. Independently from that there could still be some debate about what constitutes a non SEPP distribution within the plan window itself.
2014-09-27 22:56, By: Alan S, IP: [126.96.36.199]
L9: Question on distributionsInteresting that I received the calculations from my accountant today and the annual distribution amount differs (less) by $1.99 than what I get when I use the online 72t calculators. Since the interest rate and account balance are clear, could it be a difference in the life expectancy part of the formula? 2014-09-29 16:49, By: Doug, IP: [188.8.131.52]
L10: Question on distributionsOops, please ignore the previous post. I refigured and they match exactly.
Thanks again for everyone who commented.2014-09-29 16:53, By: Doug, IP: [184.108.40.206]