reducing SEPP 72t
L1: reducing SEPP 72tI have a client who is almost 58 and already6 years into a SEPP 72t. They would like to reduce the amount withdrawn as they aren”t in need of the funds at this time. They are currently taking out 10% annually in a monthly check. My question is three fold:
1. As she is 57, can she switch to the single life table and only start taking out 1/27th annually?
2. If above is yes, does she need take into account the higher $$$ taken out already in 2008 when figuring the total annual withdrawal or can she reduce her monthly payment going forward for the last 8 months of the year?
3. Since she started on a monthly payment SEPP will she just have to withdraw funds under the SEPP until the month she is 59.5?
Kip2008-04-28 09:22, By: levertki, IP: [127.0.0.1]
L2: reducing SEPP 72tThe answer to # 3 is YES, she only has to continue to 59 1/2, and based upon recent discussions under “FINAL YEAR PARANOIA” she might not have to take anything during the time after age 59 starts.
It may not be worthwhile for her to worry about making the change for just 1 year, especially because of al of the possible ways of it being done wrong, and subjecting her to busting the plan, just for the difference of not much money. If she has returned to work, she could offset that extra income by making contributions to a different, non-SEPP, deductible IRA, or to a new ROTH IRA.
Someone else will answer about the other calculations.2008-04-28 11:48, By: dlzallestaxes, IP: [126.96.36.199]
L2: reducing SEPP 72tdlz has addressed Q 3.
I am concerned about your statement that she is taking out 10% annually. 10% of what figure? Under the amortization or annuitization plans, a set dollar amount comes out, not a set %. If this is not a legitimate method under 2002-62, she may be looking at a busted plan. Please clarify.
If the current plan is valid, there is a one time switch to the RMD method available which almost always will reduce the annual distribution. The RMD method is inherently an annual method, so should be adopted as of January 1st. If the RMD distribution is calculated using the 12/31/07 account balance, any distributions already taken in 2008 can be credited against the RMD calculation. If too much has been taken out already, client may be able to roll back one distribution within 60 days if a rollover is permitted under the one rollover rule.
Q1) A 58 year old cannot use the Uniform Table as that starts at age 70. The single life expectancy table I, or Table II in Pub 590 can be used if the spouse is beneficiary and over 10 years younger.
Q2) Do not pro rate mid year. Adjust as above so the total taken in the RMD year equals the RMD calculation. It does not matter how much comes out in any particular month.2008-04-28 12:43, By: Alan S., IP: [188.8.131.52]
L2: reducing SEPP 72tAlan,
The current w/d is about 10% of the current value (set amount monthly). I didn”t set up the SEPP, but at the time (pre 01/03) couldn”t you use whatever rate you wanted to? Using the table you said, it appears that she has probably taken out her entire 2008 allotment already (58 yr old is 27 yrs).
2008-04-28 14:43, By: levertki, IP: [184.108.40.206]
L2: reducing SEPP 72tThe effective date for Rev.Rul. 2002-62 was 01/01/2003. The max rate for a plan adopted in 02/03 would have been about 4.12% – not even close to being high enough to generate a distribution of 10% of assets. This plan may have a real problem. Go back and do the calculations based on what should have happened. If the plan is already busted, then you need to have a serious talk withyour client.
Even before 01/03, you couldn”t just pick a rate. The generally accepted maxiumum for a pre 2003 plan was 120% of the Long Term AFR.
2008-04-28 14:52, By: Gfw, IP: [220.127.116.11]
L2: reducing SEPP 72tGFW,
Pre 01-03, 2008 – 6 yrs = sometimes in 2002. Not sure of the original amount or percentage, but currently it is about 10% of the current value. Monthly payments haven”t changed.
Kip2008-04-28 14:55, By: levertki, IP: [18.104.22.168]
L2: reducing SEPP 72tFrom my previous response…
Even before 01/03, you couldn”t just pick a rate. The generally accepted maxiumum for a pre 2003 plan was 120% of the Long Term AFR fopr the previous month. 2008-04-28 14:57, By: Gfw, IP: [22.214.171.124]
L2: reducing SEPP 72tIt is POSSIBLE that we have a semantics problem here.
The posting is saying that NOW the distributions are about 10% of the CURRENT VALUE. It is possible that the VALUE of the account has declined so much because of the market, or poor investments, that the originally calculated amount WAS about 4% originally, but now that the account has declined by 60%, the current % is close to 10%. Just an idea to consider.2008-04-28 22:24, By: dlzallestaxes, IP: [126.96.36.199]
L2: reducing SEPP 72tDLZ…
I guess anything is possible, butthe 10% seems a little mysterious and most everything else a little unknown.
I know that before I (if this were my client)gave any advice to the client, I would want to know the original details to get the current status so that I had some idea of what I was dealing with before I gave any recommendations regarding making any type of change.
2008-04-29 03:03, By: Gfw, IP: [188.8.131.52]
L2: reducing SEPP 72tThe original proposal 6-13-00 says 6%, but original amount was over 7% and it has remained constant. Probably not the best time back in 2000 to invest in the market so it has declined a bit.
2008-04-29 06:05, By: levertki, IP: [184.108.40.206]
L2: reducing SEPP 72tWhile anything IS possible with respect to underperformance since the plan started, a 2002 start date coincides very closely with the bottom of the 2000-2002 bear market. This makes further declines since the original account balance was established much more unlikely than if this plan had started 3 years earlier near the top of the market. As stated, the original documentation needs to be examined to see if there is a valid plan in force or not.2008-04-29 18:34, By: Alan S., IP: [220.127.116.11]