Sepp calculation and start dates.
L1: Sepp calculation and start dates.
I’ve been reading the practical guide and the different documents on this site. The letter of determination says to use the most recent account balances. The sample form suggest using EOY previous year values.
My current TSP account statements tend to lag by about a month, so the figure that is readily documentable is old.
If I establish a SEPP and intend my first distribution to be in September of 2011, What “as of” account balance dates should I use?
August 2011? (month previous to SEPP initial distribution)
July 2011? (last documentable TSP statement prior to SEPP initial distribution)
December 31 2010? (last documentable EOY prior to SEPP initial distribution)
For whatever calculation balances/dates I end up using, Do I use the interest rate (120% of published Fed rate) for the corresponding period?
2011-07-21 23:45, By: Plataoplomo, IP: [126.96.36.199]
L2: Sepp calculation and start dates.
You use the account balance that represents a “reasonable” valuation of your account balance used for the calculations – July or August should be fine unless you have taken any distributions that aren’t reflected in the account balance.
The account balance date is not a factor in determining the interest rate…
“The interest rate that may be used is any interest rate that is not more than 120 percent of the federal mid-term rate for either of the two months immediately preceding the month in which the distribution begins.”
If you have been reading the book, your interest rate question suggests that you spend more time reading – the interest rate determination date is one of the basics of a SEPP plan.
2011-07-21 23:51, By: Gfw, IP: [188.8.131.52]
L3: Sepp calculation and start dates.
Lately, several posters have indicated that they want to use their TSP account for their SEPP plan. While that is certainly allowed under the IRS rules, you should be aware that you are giving up some control of your plan that
you would have if you rolled the TSP to an IRA and used the IRA account for your plan.
1) The TSP does not directly support 72t plans, so you need to manage your plan without any input from them. Most likely, you will have to do your calculation and then select exact periodic payments that add up to your annual
2) If you make an error and in December you have distributed too much due to your error or the plan, chances are that you are not going to be able to roll the excess back into the plan. You might, but it will take special handling.
3) If you take out too little, will you will be able to get a special one time supplemental distribution out prior to year end?
4) Will you be starting your plan very soon after separation in circumstances where a late matching distribution might be added to the account, or the plan itself makes an adjustment without touching bases with you?
5) Will your stub year options be restricted by the number of changes the TSP allows you to make in a given year?
Some of these potential problems will never surface or could be corrected in some cases. Still, making adjustments will not be as easy as they would be with an IRA because plan administrative procedures could conflict with what
you need to do.
I understand that people want to stay with the TSP because their low operating ratios cannot be matched. However, many IRA ETF or index funds available in an IRA brokerage account have operating ratios only a couple basis points
higher and that difference is immaterial when compared with better control over your plan.
If you still prefer to use the TSP directly, triple check the accuracy of your distribution orders from the plan.
2011-07-22 00:55, By: Alan S., IP: [184.108.40.206]
L4: Sepp calculation and start dates.
I agree with Alan that you would be better served to process an IRA Rollover from TSP to an IRA using a brokerage account platform. You will solve more problems by making the transfer than you will save is fees by staying in TSP. You can buy and sell almost
any type of asset within the brokerage account IRA. Furthermore your distributions will come from the one account rather than from different investment accounts. Now refer to the following links to the TSP distribution forms:
https://www.tsp.gov/PDF/formspubs/tsp-70.pdf(Form TSP-70 for Civilians)
https://www.tsp.gov/PDF/formspubs/tsp-u-70.pdf(Form TSP-U-70 for Uniformed Services like the military)
Refer to PDF Page 2 for the instructions, and look for the appropriate section for withdrawals. You will notice the following:
Problem #1: Periodic distributions areMONTHLY!
Problem #2: Only ONE CHANGE PER YEAR is allowed. Somuch for being able to correct errors. If you did process a second form for the
“lump sum” then you bust the plan by taking out excess.
Problem #3: The MANDATORY 20% WITHHOLDING on all distributions speaks for itself!
Problem #4: Unless you are real lucky, when you round to the nearest dollar for monthly distributions, 12 monthly roundings will exceed the allowed annual $1.00 variance.
Do the IRA Rollover to a brokerage account platform IRA and save yourself a boat-load of grief!
For Alan S.: Pleasere-post the link for the SEP IRA indicating that employee contributions linked to their personal IRA limit ($5k or $6k per year) can be added to the employer’s contributions. I erroneously deleted it and I would like to review it.
2011-07-22 14:46, By: Jim F, IP: [220.127.116.11]
L5: Sepp calculation and start dates.
I can’t recall the former link I posted, but the ability to make regular TIRA contributions to a SEP IRA account is covered here in Q 5 under “contributions”.
The other issue I think was the rollover of a TIRA to a SEP IRA, and for that I linked a rollover portability chart. Did you want me to re post that chart?
2011-07-22 20:00, By: Alan S., IP: [18.104.22.168]
L6: Sepp calculation and start dates.
Alan/Jim… I posted the link for portability atSEPP Related Links
2011-07-22 20:15, By: Gfw, IP: [22.214.171.124]
L5: Sepp calculation and start dates.
Thank you all for your responses and good information. I purposely left out details in my first post for brevity’s sake. I’ll flesh out the structure a bit more.
I plan to separate from my employer. Roll the current balance of my TSP account into a SDIRA account.
From that SDIRA account I will take one distribution in 2011 for the full year SEPP calculation. In 2012 and subsequent years I will take quarterly SEPP distributions equal to the full year calculation.
Beyond the documentation mentioned in the book and here
What documentation is required to be sent to the IRS?
Is the only thing they get a form from the SDIRA custodian stating that this was a normal SEPP distribution?
2011-07-22 21:50, By: plataoplomo, IP: [126.96.36.199]
L6: Sepp calculation and start dates.
You do not send anything to the IRS automatically. If the IRS ask for info or sends you a bill for the penalty, then you must respond and we all have our opinions on how best to feed the IRS the info. It is probably best to only
send them what they ask for even though they might follow up for more.
In most cases the 1099R issued by the custodian will report an early distribution (Code 1) when you are under 59.5, and if that is what you get you will need to complete a 5329 showing exception code “02” for the SEPP. The 5329
should head off further inquiries, but no guarantee. If the IRS just sends you a bill for the penalty and that’s it, I would just assume they missed the 5329 and send them another copy of it.
If you are fortunate, your custodian may still code the 5329 with the SEPP exception, but if they don’t don’t worry about it. A 5329 is no longer a red flag because most participants must file one now. Last I knew Fidelity and
Vanguard coded the distributions as early, but Schwab would provide the exception coding. You should not use this as an important factor in selecting an IRA custodian.
One last issue – you indicated SDIRA. While all IRAs are self directed, in recent years this term has come to primarily refer to IRA accounts held with custodians that allow alternate investments such as real estate in the IRA.
It is not a good idea to hold alternate investments in an IRA used for a SEPP plan because there are just too many risks and unintended consequences. I am sure some people have tried this, but we hardly ever hear of it here. The usual holding that cause challenges
that we see here are CDs and annuities where people what to annuitize on a short term period certain.
2011-07-22 22:51, By: Alan S., IP: [188.8.131.52]
L7: Sepp calculation and start dates.
Thank you very much Alan,
I am planning to hold vaulted pm’s as the underlying asset.
The vaulting service I am using allows me to sell this asset in very fractional amounts. So getting the distribution amount correct should not be a problem.
Getting the IRA custodian to correctly code the distribution is one of my worries.
Ensuring they stay under the de-minimus threshold over the course of the entire year is another.
The distributions will be “in kind”. Meaning that I will not receive currency as a distribution but grams or fractional grams of pm priced at the time of distribution to equal the scheduled distribution amount.
I can think of no other way to stem the “value hemorage” and purchasing power loss caused by currency debasement.
Any thoughts and comments are appreciated.
2011-07-22 23:01, By: plataoplomo, IP: [184.108.40.206]
L8: Sepp calculation and start dates.
Seems like it would be easier to just purchase one of the gold ETFs like GLD or the silver ETF which you could hold in any IRA brokerage account without the high fees and possible shipping and insurance charges. You could also
mix in the mining stocks.
Anyway, the main concern with your current plan, assuming that all the holdings are IRA approved (certain coins are not), is how you are will pay the fees and handling charges. Some of these you could have achoice of paying
out of the IRA or paying from outside funds and there would be no contribution or distribution that would bust your plan. But I have no idea regarding the shipping charges. They are not administrative in any respect and could not be paid without outside funds.
The only acceptable choice for a 72t plan would be if the custodian can include those fees in the 1099R distribution amount while maintaining the exact SEPP calcalution figure and the pms you actually receive would be net of those charges.
Others may come up with additional issues. Yours is the first post we have had regarding this form of asset holding in the SEPP IRA.
2011-07-22 23:37, By: Alan S., IP: [220.127.116.11]
L9: Sepp calculation and start dates.
Thank you Alan,
I looked at SLV and GLD extensively. My concern with them is that they may have overstated their actual tangible holdings in relation to the number of shares, (promises against those tangible assets), they have outstanding.
The service I am thinking of has no insurance or shipping fees beyond what is encapsulated in the annual storage fees.
The IRA custodian will allow payment from either outside or inside the IRA.
I expect the vaulting service storage fees to be subtracted from within the IRA account. I expect any fees for distribution transfer to my personal account to be subtracted from within the IRA account.
The distributions themselves will be in the form of allocated amounts of pm, (to the fractional gram), from one side of the vault, (the custodian account), to the other side of the vault, (my personal account).
The amount of weight that is transferred will be determined by the current spot price at the time of distribution. And should be recorded and reported as a US dollar figure.
Once the correct weight of pm is deposited in my personal account the distribution is complete and I may do with it as I wish. Sell it for currency or retain it in its pm weight.
What am I missing? Questions and comments / opinions are very welcome.
2011-07-22 23:56, By: plataoplomo, IP: [18.104.22.168]
L10: Sepp calculation and start dates.
One small misstep or miscalculation of just $ 1 in any of the next 5 years, or until you are 59 1/2 will cost you a 10% penalty retroactively on the cumulative distributions. I can almost guarantee you that there is a better chance that this will happen
than your inflation hedge in gold and silver being foolproof.
2011-07-23 17:11, By: dlzallestaxes, IP: [22.214.171.124]
L11: Sepp calculation and start dates.
Thank you dlzallestaxes,
I understand and you are correct. It is a path fraught with risk.
1.) I could just leave my savings where they are. I have been in the “G” fund since 2007. Measured against the necessities of life, they have lost 40% of their value since.
What are the chances of the economy returning to prosperity over the next 12 years? Of me getting that lost 40% back?
2.) I could take full early distribution upon separation. That would trigger the 10% penalty and taxes on the gross. Which would push me into the highest tax bracket.
3.) I could take partial early distributions over the course of the next few years. That would avoid higher tax bracket but still incur the 10% wrath.
4.) I could translate my savings into tangibles. That could stem the value loss. But now I have all of the fees and risks of translating it back and forth.
You have a better idea? I would love to hear it.
2011-07-23 22:21, By: plataoplomo, IP: [126.96.36.199]
L12: Sepp calculation and start dates.
This site deals in questions about SEPP plans and not investment advice. If you have additional questions regarding a SEPP, please continue to ask.
However, if you need investment advice, you should probably contact and hire an invesment advisor.
2011-07-23 22:33, By: Gfw, IP: [188.8.131.52]
L13: Sepp calculation and start dates.
I understand and thank you for bringing me back on topic. I have been known to digress.
2011-07-23 22:54, By: plataoplomo, IP: [184.108.40.206]
L12: Sepp calculation and start dates.
It was never stated, but did you separate from service prior to the calendar year in which you would turn 55? If not, there is a separate penalty exception for distributions directly from the TSP, and you would not need a SEPP
while using the TSP periodic distribution option.
2011-07-23 22:37, By: Alan S., IP: [220.127.116.11]
L13: Sepp calculation and start dates.
I have yet to separate. I am currently 47. My birthday is Dec. 31st.
Could this cause problems with the SEPP calculations?
“Age is attained age on 12/31 of the year that distributions will begin”
If I take my first distribution in Sep/2011. I will be 47 at time. But my attained age for 2011 would be 48. Changes the calculated amount by a few hundred dollars.
But as pointed out earlier, under “de-minimus” every dollar counts.
Is this a problem?
2011-07-23 22:55, By: plataoplomo, IP: [18.104.22.168]
L14: Sepp calculation and start dates.
You will be 48 for purposes of the SEPP.
Go back to my original response. You stated in your first post that you have read the book, yet your questions about interest rates and now the age to use suggests that you may need help setting up your SEPP, or you need to spend more time reading.
2011-07-24 00:39, By: Gfw, IP: [22.214.171.124]
L15: Sepp calculation and start dates.
As every broker and mutual fund tells you, and prints on their information,
” Past performance should not be taken as a guarantee of future performance.”
This works in both directions. Since the bottom 2 or 3 years ago, the stock market has increased 50%. However, if you were in the “safe” fund of fixed interest investments, then those have declined significantly during this period as interest rate fluctuated.
Most financial advisors suggest a diversified “balanced” portfolio in both stocks/mutaul funds and fixed interest investments, because they usually go in opposite directions. Putting “all of your eggs/investments in one basket/type of investment/same fund
is rarely advisable.
2011-07-24 14:28, By: dlzallestaxes, IP: [126.96.36.199]
L16: Sepp calculation and start dates.
“G-fund” is the government’s backup to exceeding the debt ceiling. The danger with this investment approachshould beobvious today!
Putting all of your investments in one type of asset (hard assets in your case) is like only funding your 401(k) with company stock. Do you remember Enron and Worldcom? This is what happened to their employees.
I strongly suggest you either seek out the services of a qualified financial advisor to develop a balanced investment plan for you, or fire your current “advisor” if he / she (or maybe you)is recommending the strategy you have described.
Remember: It took many years for gold and silver to start increasing in value. When the financial markets return to normal … and they will … then gold and silver will tank about as fast as they have risen over recent years. Selling drives the price
down and in this environment you will have more sellers than buyers, and you run the risk of being stuck with a sinking asset.
2011-07-25 14:42, By: Jim F, IP: [188.8.131.52]