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SEPP Calculation

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ByTrotter

L1: SEPP CalculationJust put my request in to fidelity to start a sepp withdrawal on 3/15/11. I will turn 55 this year so I used a LE of 29.6 yrs, an int rate of 2.8% and 2010 end of year account value of 636224 to come up with an annual distribution of 31900. Fidelity calculated it to be 30764.75. I called them to find out why their calc was different and all they could tell me was that their computer used more accurate figures than were available for on line calculators. I don’t buy this. What could explain the difference in withdrawal calculations? I don’t really care much about the difference but will the IRS?2011-03-05 17:03, By: Trotter, IP: [76.216.177.138]
L2: SEPP CalculationWe don’t comment on other people’s calculators. With that said, there are a few companies that use a formula for the amortization method that is not the same as the formula used by the IRS in their sample calculations.Check out… http://72t.net/Articles/Articleshow.aspx?WA=92e48a79-6501-4b42-8b35-64cbf76fdf66have them use the same assumptions that the IRS used in their calculations and see what they come back with. The linkon the page will take you directly to the IRS calculations/results. You can also put the same numbers into our calculators and see what we get. 2011-03-05 17:21, By: Gfw, IP: [24.148.10.164]

L3: SEPP CalculationI did check the calculation. I used fidelity’s on-line calc, the 72t calculator, excel spread sheet, and manually calculated it using amortization formula A=P*((i*(1+i)^n)/(((1+i)^n)-1)). All 4 methods came up with the same answer, 31900. Only the final calc by fidelity varied. Am I correct in assuming that since this is less than the max distribution allowed -calculated by using an int rate of 2.8% – and more than MRD, that the 30764 withdrawal meets the IRS requirements for SEPP?2011-03-05 17:38, By: Trotter, IP: [76.216.177.138]

L4: SEPP CalculationPossibly, but why take the chance. Fidelity probably isn’t going to give you a code of 2 on your 1099 anyway. If you subsequently transfer from Fidelity to someone else, will Fidelity still stand by the calculation?Start with… http://72t.net/72t/Planning/Pointersand the manage the plan and the distributions yourself. If something goes wrong, it is between you and the IRS. 2011-03-05 18:12, By: Gfw, IP: [24.148.10.164]

L5: SEPP CalculationThis is what Fidelity told me when I was thinking of starting a SEPP last year:

If you plan to manage the distributions yourself, then you do not need to let us know. Even when managed by us, distributions are coded as early with no known exception, as you must file IRS Form 5329 to have the penalty waived. Establishing or making changes to a SEPP plan should be discussed with your tax advisor.2011-03-05 19:37, By: bob-85364, IP: [98.145.6.233]

L6: SEPP CalculationWhat they are really saying is “your are on your own”. Start by learning all about SEPPs – you may have already done that. Then consider starting in April instead of March – the rate goes to 2.94% – not a big difference, but at least take a look.2011-03-05 19:52, By: Gfw, IP: [24.148.10.164]

L7: SEPP CalculationI’ve read most everything I can find on the subject including most of this site. The extra $1135 or so doesn’t really make much of a difference to me. I’m pretty confident either amount will satisfy the IRS as long as I’m between the max and min. I just have an obsession to understand the numbers. 2011-03-05 21:28, By: Trotter, IP: [76.216.177.138]

L8: SEPP CalculationThis issue comes up from time to time.The difference is related to the frequency of distributions elected. This site does not consider the pattern of annual distributions to be a factor affecting the total calendar year distribution, while Fidelity’s calculatordoes.They ask for the distributionfrequencyonly for that reason.It could be that they change the interest rate entered into the calculator depending on the frequency elected which the IRS refers to as the compounding rate on their interest site. However, the IRS 72t plan explanationmentions under the amortization method that they assume an annual distribution made at year end, but they don’t require that. A YE distribution would allow the funds to last longer and therefore produces the highest distribution amount. The IRS says nothing about the frequency of distributions or the pattern thereof when referring to 72t plans and does not care about the actual distribution pattern when auditing 72t plans.Accordingly, see what number you get when you enter”annual” into the Fidelity calculator. It should be very close to the figuresshown on this site’ calculator. In essence, those using Fidelity’s calculator willend up with a lower distribution if they enter anyfrequency other than annual. This does not appear to benecessary.Perhaps the IRS punts the ball when auditing plans. Anyone using Fidelity’s calculator and showing a distribution frequency other than annual will in effect be using a lower interest rate. Since lower rates (but not higher)are allowed, the IRS passes Fidelity plans. If their plans were busted, Fidelity would have changed their calculator by now. But why settle for a lower distribution, particularly in this era of excessively low interest rates?2011-03-06 02:54, By: Alan S., IP: [24.119.230.17]

L9: SEPP CalculationThe advantage is that you will be able to sendthe SEPP calculation sheet printed by Fidelity to the IRS when they audit you. It may not be better than one you do yourself, but it looks professional and they didn’t question it.2011-03-10 03:15, By: jbford, IP: [173.216.91.206]

L10: SEPP CalculationI’m doing my SEPP from Fidelity. On advice from another fellow doing an SEPP from Fidelity, I got them to send me a letter specifically stating that they are not responsible for SEPP plans and do not code these distributions with anything other than a “1”. All this is the taxapyers responsibility. I will present this letter to Mr. IRS along with my calculations, if they ever ask me for documentation.2011-03-10 14:07, By: mikex, IP: [71.90.165.27]

L11: SEPP CalculationIf you use the calculators on this site and makeprintouts for your records, and use the other documentation forms also available on this site, you will have adequate documentation for the IRS. Having a “professional looking document” from Fidelity carries no more weight with the IRS than the documents produced on this website. Of course the old addage of “garbage in; garbage out” must be taken into account when using the calculators.We have had many reports from people who used documentation produced on this website to defend their SEPP Plan with the IRS and it seems that 100% have had success when dealing with an audit. In fact, many posters have reported that the IRSrepresentatives referred taxpayers to this site when they haveSEPP Plan / 72(t)(q) questions. That’s about the strongest endorsement you could expect.Hope this helps.Jim2011-03-10 14:41, By: Jim, IP: [70.167.81.119]

L12: SEPP CalculationI also requested, and received a letter from Fidelity saying that they always code “no known exception” on the form. More good ammo to have when the IRS examines you.2011-03-10 17:10, By: jbford, IP: [173.216.91.206]

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