ready to start SEPP 72t
L1: ready to start SEPP 72tHello, I posted a couple weeks ago regarding my setting up a SEPP 72t plan and received a lot of well informed replies, many thanks for sharing your knowledge and experience in an area that appears as if most don’t know much about it or understand it…
Here is my proposed plan specifics: age 55 (1-8-56), interest rate 2.98%, account value May 31, 2011 is $779,099.10, using SEPP calculator here amortization method is $39,980.64 annual, using 12 monthly distributions starting June 7, 2011 of $3,331.72 each, final distribution May 7, 2016…
My IRA account is with TD Ameritrade. I can set up the monthly distributions to be credited into my checking account at Bank America on the 7th of each month..
Questions: Does this seem correct/reasonable? ( I am trying to prevent “ready,fire,aim”)
I was going to have TD Ameritrade withhold 15% for taxes, anyone have any experience using TD Ameritrade for SEPP?
Thank you for your help, Bill J
2011-06-02 19:39, By: bill, IP: [220.127.116.11]
L2: ready to start SEPP 72tIf you are single, then the 15% withholding is probably appropriate.
If you file a joint return, you should probably have 25% withheld.
You probably should have state taxes withheld as well.
Do a projected tax return, or have a tax practitioner prepare one, for 2011 and 2012, in order to estimate if you tax withholdings will be adequate.2011-06-02 19:44, By: dlzallestaxes, IP: [18.104.22.168]
L3: ready to start SEPP 72tThanks dlz….I’ll have 25% withheld, I have done projected plan with my accountant and with tax exempt interest and alimony deduction I should be under 25%…..State taxes are not an issue as I am a resident of Florida…does the rest look okay? thanks,Bill J2011-06-02 19:55, By: bill, IP: [22.214.171.124]
L4: ready to start SEPP 72tWhy withhold 25% if your projection shows that you’ll only need 15% ?
2011 might be 15%, and 2012 change to 25%, if applicable.
Tax Exempt interest will not affect the tax rate on the SEPP distributions.
Alimony will reduce the taxable income, as you stated into the 15% tax bracket.
If/when you re-marry, you might be in the 15% tax bracket.
You may change tax brackets, and withholdings, each year. Have your accountant check it with you at least every November for the current year, and to project the following year.2011-06-02 20:14, By: dlzallestaxes, IP: [126.96.36.199]
L5: ready to start SEPP 72tPaying taxes by quarterly estimates poses fewer risks to your 72t plan than using withholding from your SEPP IRA account. Here are the reasons:
1) Withholding is an additional and unnecessary variable which presents an additional chance of busting the plan due to miscommunications or mishandling by the custodian. We have seen a few of those cases posted here. Some errors can be corrected in time and some cannot.
2) Once funds are withheld and go to the IRS, you can’t get them back if you need more funds currently. You have to wait until your tax refund next spring. While you still need to pay the taxes at some point, underpayment penalties are 4% based on the unpaid tax amountwhile a busted SEPP penalty is 10% on the entire amount distributed since day 1. If you use state withholding, with some states you might get an IOU instead of cash when you need it. This point may not be a problem for the few SEPP participants who have plenty of liquidity from sources other than their SEPP IRA account.
3) While you can adjust future withholding also, that is yet another chance for the custodian to mess up or for you to direct your SEPP funds incorrectly. Quarterly estimates are paid in arrears, whereas withholding is paid whenever you take your distributions. Those distributions could be early in the year as well as late in the year. If you take your distribution early in the year and have a medical emergency later in the year, your projected taxes are not there for you to use, they reside in the IRS.
Several detail oriented people who post here have used withholding without a problem and prefer it. But the people who post issues are often not that detail oriented.
2011-06-03 23:48, By: Alan S., IP: [188.8.131.52]