Rollover for SEPP Plan starting in January of 2011
L1: Rollover for SEPP Plan starting in January of 2011I am planning to retire early at the end of 2010. December 20, to be exact.
To do this, I plan to do a direct role of my 401K balance from my present employer into my existing rollover IRA (holding proceeds from 401K programs at prior jobs) at T Rowe, and then take monthly distributions in 2011 based on the entire balance.
Does the money from my current employer need to be “at” T Rowe by December 31, 2010 to use the full amount from both sources for a SEPP plan starting in January of 2011? Suppose the check from my current employer shows up at T Rowe on January 5, 2011?2010-11-08 17:11, By: Tom R, IP: [22.214.171.124]
L2: Rollover for SEPP Plan starting in January of 2011It will likely take more than 10 days for the money to show up to T Rowe Price, especially around the year end holidays, and you really need it all combined into the one IRA that will be used for your SEPP before you do the calculations, and you need to print out or obtain a statement of the combined balance total that you will use in your calculations and hold on to it as proof of your SEPP plan starting balance if ever needed. The simple solution is to wait for it to arrive, and get the combined balance, and make the calculation that you submit to T Rowe. It may require you to get your first payment in the middle or latter part of January,(if you are doing monthly payments, which I recommend, having tried semi annual for a year,and then switched to monthly in year two) but I think you can instruct your custodian that you want the payments after Januaryissued on the 5th of the month, so the Feb payment is on 2/5. That is the best way to handle this in my estimation. Good luck. KEN2010-11-08 17:22, By: Ken, IP: [126.96.36.199]
L3: Rollover for SEPP Plan starting in January of 2011STOP !!! What is your date of birth ? If you are already 55, or will be before 12/31/2010, then you do not need a SEPP 72-T because you are “SEPARATING FROM SERVICE” in the year that you are, or will become, 55, which is one of the other IRS exceptions.
You can take periodic payments whenever you want, if your current 401-K plan allows it, and not be subject to the 10% penalty for early distributions. And, you will not have to worry about “busting” a SEPP 72-T plan if an emergency arises, avoid locking yopurself into the pan for 5 years or until you are 59 1/2 (whichever is later), etc.
If you will not be 55 by 12/31/2010, but will become 55 in 2011, then wait until Jabuary to “SEPARATE FROM SERVICE”, and be eligible for this exception. Even if you will not be 55 until Dec 2011, you can start to take distributions in January after you Separate from Service.
If you roll over/transfer the 401-K to an IRA, then you lose the benefit of this exception, and are subject to all of the restrictions of a SEPP 72-T plan.
Also, have you checked to see if there is any employer company stock in your plan ? If so, then you may be able to benefit from the NUA provisions of the tax code. ( Search this site re this provision)2010-11-08 19:56, By: dlzallestaxes, IP: [188.8.131.52]
L4: Rollover for SEPP Plan starting in January of 2011I am 522010-11-15 21:20, By: Tom, IP: [184.108.40.206]
L5: Rollover for SEPP Plan starting in January of 2011That means that the penalty exception for direct distributions from your 401k plan at 55do not apply, and you will need a 72t plan in order to avoid early withdrawal penalties. Your plan will have to last until you reach 59.5.
I agree that it will probably not be possible to complete your rollover prior to year end, and as Ken indicated, the earliest you will be able to start your plan will be in January. I also suggest that you do an IRA transfer from the receiving IRA to a new account number that you will use for your SEPP plan. The reason for this is that you intend to start your plan extremely close to your final day at work, and that could mean late dividends, company match payments etc being paid for a few weeks that could bust your plan. Those late payments can go into the same IRA as the original rollover without hurting your plan because your plan will involve the new IRA account only, one that will only receive the funds that YOU transfer there and will not get transfers directly from the 401k plan.
2010-11-15 21:31, By: Alan S., IP: [220.127.116.11]
L6: Rollover for SEPP Plan starting in January of 2011Thank you Alan. I will follow that advice.
It looks like rates are trending up for the moment. (Not exactly what was intended by “QE2”, huh?). I see that the author of this site is predicting 1.96% as the 120% of mid term rate for December – up .05%.
T Rowe will distribute quarterly. So I will probably elect quarterly distributions and wait to take the first distribution if I see January’s raterise even more. Based on today’ssharp increase in the UST10Y yield, perhaps there will be additional increases next month.2010-11-15 21:44, By: Tom R, IP: [18.104.22.168]
L7: Rollover for SEPP Plan starting in January of 2011Gordon is usually within +/- .05, so his estimate probably means that Dec will not decline again , or if it does it will be only a negligible amount.
That would mean you could wait until Feb to see what the Jan rate will be before pulling initiating distributions with no fallout for forfeiting access to the Nov rate. And no matter which month your first distribution is in, you have the option of either pro rating by the month or taking out a full annual distribution for your first year. If you start in Feb, you might consider distributing 3 quarterlies and then decide for the final distribution to take either 2 or 3 months worth.
You do not necessarily have to use the initial account balance upon establishing the IRA account used for the SEPP. Obviously, you cannot use an earlier date for the balance, but if you get further gains in January, you could selecta date with a higher balance, and just make a couple copies of a statement or on line account balance for the account.
2010-11-16 01:11, By: Alan S., IP: [22.214.171.124]