L1: SEPPI plan on retiring (early) in Dec 10 or Jan 2011. I will be 43 and have around 600,000 to invest in an IRA, from which I want to set up a SEPP plan to have a regular income. DO companies like Merril Lynch or Raymond James offer SEPP custodial services? Do custodians assist in making sure you don’t bust your plan? Is it easier to keep track of your accuracy year to year if you set the SEPP up as an annual payment vs. a bi-weekly or monthly? this is all very daunting, this site has been very helpful thus far.2010-09-26 20:02, By: Brad, IP: [188.8.131.52]
L2: SEPPMost all brokerage companies offer some type of support, but ultimately the responsibility is yours – an IRA is always between you and the IRS. Will they prevent you from busting the plan, not really – again, you have to monitor the plan and make sure that you take out the right amount – no more and no less.
If you haven’t already found our Planning Pointers, start herehttp://72t.net/72t/Planning/Pointersand a lot of your questions will be answered. If you don’t have any other assets, considering using part of the $600,000 as a separate IRA for emergencies – age 43 to age 59.5 is a long time for $600,000 – and then you also have the time after age 59.5.
Have you determined how much you will need to meet your expenses? If not, that becomes step 1. Until you are convinced that the amount you can allocate to the SEPP is sufficient, you may have to consider retiring later or doing part time work.
Annual distributions are always easier, but budgeting the annual distribution to take care of your monthly expenses can be a bigger problem.
You mentioned that you won’t be starting until December or January – that gives you lots of time to ask questions and learn what you need to know to make sure that you SEPP will actually do what you want it to do.2010-09-26 20:59, By: Gfw, IP: [184.108.40.206]
L3: early SEPPGordon is right about warning you not to tie up all of your assets in the SEPP plan calculations, since some emergencies could definitely occur over the next 17+ years that the plan would have to run, and you may be forced to BUST the plan to get at extra money in that IRA, unless you have moved someto a separate IRA that is not involved in your SEPP calcs before you start. Then you would only incur a 10%$ penalty on that withdrawal and not impact your SEPP plan. That point aside, there are some things to warn you about.
1. Using the $600K and age 43 in your calcs on this site’s calculator, and current max int rate of 2.83%, an amortization payout would yield about $25K per year (Gross). Waiting until DEC or JAN could give you lower yield as the max int rate has been declining and a new one would have to be utilized. That may not be enough to live on even with a part time job. That is not a lot of money, andyou have to thinkabout where you would get medical coverage and how much it might cost during these years. It could use up a good portion of your withdrawal each year to have medical coverage.
2. If #1 was followed, you would have taken out $425,000 (17 x $25K) prior to age 60 from your IRA, and if you made money on the IRAat the same 2.83% each year, it says you would be left with about $400K for the rest of your life. What this shows me is that you could have had an IRA balance closer to $825,000 if you kept working until you were closer to 60, and did not even add to the IRA. Then you may have enough accumulated to start an early retirement. If you are no longer working full time during these 17 years, and SOC SEC is still viable when you get to that age, you may not have enough quarters to qualify, or if you do, they may balance out to a much lower rate to compute your benefit because of your low income during these 17 years.
If the only large asset you have is this $600K (which is a nice amount to have saved or accumulated during your working years so far), I think you need to be very cautious about thinking of starting to withdraw from that nest egg at such a young age. Perhaps you have a nice part time income in mind, but if not, this does not sound like a great idea.
2010-09-26 21:16, By: Ken, IP: [220.127.116.11]
L4: early SEPPWell thank you all for those replies. I should say that I will be debt free. No car/mortgage payments and I do plan on part time work. My wife is going to continue working at her $55,000/yr job as she is only 4 years into her career. Health coverage is not an issue, I will have it.2010-09-26 21:32, By: Brad, IP: [18.104.22.168]
L5: early SEPPHave you considered the feasibility of doing a ROTH CONVERSION in 2010 for part of your IRA money? Theamount convertedwill be included 50% in your taxable income in each of 2011 and 2012, with taxes paid 4/15/2012 for 2011, and then estimated payments quarterly in 2012. This can be beneficial, and possibly save taxes, because you should be in a lower tax bracket in 2011 and 2012 if your earnings decrease significantly after you retire. Any SEPP distribution in 2010 will be taxed on top of your joint earnings for 2010.
Whatever you convert to a ROTH IRA in 2010 will accumulate tax-free for the rest of your life, your surviving spouse’s life, and your kids’ lives, after you pay the tax on what you convert as mentioned above.
If you are not familiar with this special provision for 2010, get professional tax advice.2010-09-28 04:40, By: dlzallestaxes, IP: [22.214.171.124]