Question on excess distribution of SEPP Plan
L1: Question on excess distribution of SEPP Plan
Existing Sepp Plan
DOB – 04/08/1962
First Distribution on 04/28/2017 – Amount of Annual SEPP Payment is $14,540.04
For 2018 custodian processed a 12/31/2018 distribution for my monthly amount that reached my account on 1/2/2019. Per the custodian this was the 13th payment and was only discovered when I reviewed my year end statement and was based on an intra year update request to have payments received on 1st of the month instead of the 2nd. Was not aware custodian would count the distribution on the date it left my brokerage account and made it into my bank account. Therefore I have an excess payment of $1211.67 and my 1099 from the custodian will exceed my SEPP Payment of $14,540.04 by $1,211.67. I contacted the custodian and they will not amend the 1099.
Are there any options to correct this (such as 60 day rollover) or other options to help avoid a busted plan (Tuition payments as I have a daughter in college). Any guidance on this is greatly appreciated.
2019-01-14 15:47, By: Sepp Excess, IP: [18.104.22.168]
L2: Question on excess distribution of SEPP Plan
This is why we always suggest avoiding the first or last 5 days of the month for any periodic distribution. Year end holidays and weekends result in this type of error. However, you can save your SEPP by simply doing a 60 day rollover of the amount in excess of your SEPP amount back to the same IRA. This will not change your 1099R, but you can report a rollover on Form 1040, which will reduce the amount of your taxable distribution and your plan will be OK.
NOTE: But since you are only allowed one such 60 day rollover in a 12 month period, to be able to do the above rollover you cannot have taken a distribution from any of your IRA accounts that you rolled over in the 12 months prior to 12/31/2018. And if you are OK there you cannot do another one for the next 12 months, therefore you better adjust your distribution dates (whether monthly, quarterly, or random) away from the first or last 5 days of a month.
Note that the rules do NOT allow you to roll over a SEPP distribution, but you can roll the excess back because the excess is not considered a SEPP distribution.
Finally, you will need to make sure your 2019 distributions are correct. The custodian will treat the recent distribution as your January payment made early, and you will then only get 11 payments for 2019 and your 2019 1099R will be short one payment. Suggest you set up a new payment schedule effective ASAP that will pay you the correct amount in 2019 and result in the 2019 1099R showing the correct amount. Since you apparently need the payments early each month, suggest requesting a new January distribution NOW and then set up the next 11 months to be distributed on the 5th of the month.
2019-01-14 18:48, By: Alan S, IP: [22.214.171.124]