SEPP End & 1099R

L1: SEPP End & 1099RHello, All:I retired at age 55 in 2004 and started taking 72t payments from my 401k rollover to an IRA in March 2005. I take payments quarterly, so the full amount was taken for 2005. While it will be a couple of years before I reach the end of my 5 year period, I am curious as to what will happen after my 5th year has ended. This will be in March 2010. I can then end my SEPP plan and go to an unstructured withdrawal plan. My question is “what will my IRA custodian do with the 1099 for year 2010? Will I get 2 1099s, one for the 3 months of that year that are the tail end of my SEPP and one 1099 for the rest of 2010? That would seem proper as the withdrawal code will be different for those 2 periods in that same year. My account is with Vanguard. Anyone have experience with Vanguard as to what their custom is for this? All comments appreciated.Ed2007-06-09 20:52, By: Ed_B, IP: [67.170.159.37]
L2: SEPP End & 1099RHello Ed:
The theoretically correct answer is that in 2010 you should receive two 1099R”s, one for the last three months of your SEPP plan an a 2nd 1099R for any distributions you make commencing (more or less) in April, 2010 and beyond.
The above being said, you will have to discuss this with a retirement specialist at Vanguard to better understand how they see it.
Lastly, 1099R coding has been a SNAFU situation for several years with no apparent solution in the near term. However, irrespective of the 1099R”s you get, you need to keep good records and always have a firm grasp on what is correct — mostl importantly that you do not take any extra distributions before the end of your 5 year period. Come the Spring of 2011 when you are preparing your 2010 tax return, any and all 1099R errors are easily corrected with Form 5329.
TheBadger
wjstecker@wispertel.net

2007-06-10 07:37, By: TheBadger, IP: [72.42.67.46]

L2: SEPP End & 1099RHi, WJS:Thanks for your comments on the 1099R situation. I will definitely discuss this with Vanguard as the end of my SEPP approaches.I do understand that the IRS and most IRA custodians are not on the same page with 1099R coding issues. I routinely get 1099Rs with a code in box 7 or “1”. This is in spite of the fact that I went through a lengthy process with Vanguard to set up my SEPP and am receiving regular periodic payments that are all the same size. Anyway, I do file a form 5329 because of all this so doing that will not be a new addition to my tax situation.Thanks again,EdPS Any idea why the text that I type in the message window is not visible as I type it? It shows up OK in the message posted to the board. I use the Opera browser, which I like a lot better than the MS browser. The text that I type into the nickname, email addr, subject, and password windows works fine and I can see it just fine. Just curious. Will use the MS browser for this site, if necessary.2007-06-10 11:01, By: Ed_B, IP: [67.170.159.37]

L2: SEPP End & 1099RIt”s is unfortunate that you did not realize in 2005 that if your employer permitted it, you could have just started taking distributions of any amount, without the 10%penalty, because you retired after reaching age 55 in 2004, and started taking the distributions in 2005 when you no longer were working for that employer. This would have avoided the entire SEPP 72-T process and 1099-R reporting complexities. Unless, of course, you wanted better investing opportunities provided in an IRA vs. your 401-k.2007-06-10 15:14, By: dlzallestaxes, IP: [151.197.33.128]

L2: SEPP End & 1099REd_B – The site is built for Internet explorer – about 97% of our traffic uses a Microsoft browser. FireFox also seems to work if you don”t like Microsoft.
Opera does a few strange things and isn”t 100% compatible -if it works great, if not we won”t change since those changes could impact what already works for all the others.
Gfw2007-06-10 15:21, By: Gfw, IP: [74.136.109.63]

L2: SEPP End & 1099Rdlzallestaxes:
Actually, I did realize that but: 1) my company plan did not allow for any but 100% distribution of the managed funds; 2) their fees were high; and 3) their choices limited. Even though we had 14 funds available to us in our company plan, only 2 of them were good enough to meet my investment standards. With only those 2 as desirable investments, I could not have gotten sufficient diversification for my retirement account even if they had allowed partial distributions. I appreciate your comment but I did know about the separation from service at age 55 / unstructured distributions possibility. Under better circumstances, I would have done that rather than the 72t.
Ed2007-06-10 16:17, By: Ed_B, IP: [67.170.159.37]

L2: SEPP End & 1099RGfw:
Understood about the IE vs Opera vs etc. browsers. I wasn”t asking for any change, just thought that you might know why this is happening. It”s possible that an Operatweak with a different font or something on this end could fix this problem… if only I knew what to tweak! In the meantime, I”ll work on thisand use IE to access this site until a fix can be found. Thanks for the reply… and for the site. The info here is REALLY good! 🙂
Ed2007-06-10 16:22, By: Ed_B, IP: [67.170.159.37]

L2: SEPP End & 1099REd_B,
As a possible fix to the “invisible font” problem while typing a reply, try clicking on the “A” that is just to the right of the “FONT” and”SIZE” windows on bottom row of thetool bar above where you type a reply, and pick a color like black, blue and red and start typing to see what happens. It changes the color for stuffyou type after you elected the change, so do it first, or you can also highlight what you typed then make a color choice and see what happens…. It almost sounds like your program is using “white” text (on white background). Just a guess. KEN2007-06-10 17:01, By: Ken, IP: [68.160.39.100]

L2: SEPP End & 1099RI think there may be two ways IRA custodians who choose to code SEPP distributions earlymay look at the final year 1099R coding:
1) Those who totally ignore the 72t and would just as soon not even know about it:
They would code everything pre 59.5 as early, but would also always code a post age 59.5 distribution as normal (Code 7) because they do not recognize when the plan began or if the 5 years extended beyond age 59.5.
OR
2) Those that recognize the 72t plan as to start date only, but simply do not want to be responsible for the calculation accuracy.
For plan running past age 59.5, they would code the post 59.5 distributions as early simply because the chose to code the pre 59.5 distributions that way. The IRS says if there is a question of modification, the post age 59.5 distributions should get a “1” code as well as pre 59.5. In this case, there is no reason for the custodian to produce two 1099R forms since all will be coded as early.
I don”t know which of the above is more common, and/or how many custodians have a firm written procedure for this. Bottom line, for various reasons, many of these fall to the taxpayer and Form 5329.

2007-06-12 15:44, By: Alan S., IP: [24.116.66.98]

L2: SEPP End & 1099RKen:
Thanks for the suggestions. I tried them all but this did not solve the disappearing font problem. For now, I will just use MS IE which works fine here. I will report this problem to the Opera programming crew to see if they can fix it via patching the Opera program code.
Ed2007-06-12 18:20, By: Ed_B, IP: [67.170.159.37]

L2: SEPP End & 1099RAlan:
Thanks for the reply on the 1099R coding. I must say that I am under-whelmed by the IRS”s handling of this issue. One would think that they would not want tons of 5329s coming in to correct what should be simple… box 4 1099R coding. If an employee of mine could not resolve this issue in 10 seconds, I would suggest that they look for a less challenging job. Apparently, though, this is a difficult problem and not one that can be solved quickly and easily. Personally, I just hope that the IRS does not have any issues with how my final SEPP year 1099R is coded. Issuing two of them would be an ideal solution but so far I am not impressed with the coding that has been done. My custodian required that I fill out a 6-page form for setting up a SEPP but now cannot seem to figure out that I even have a SEPP. Just to be facecious here, perhaps I should just have called them and issued a verbal SEPP request. If they aren”t going to use the info I give them, what matters if it is on paper or not. Heh heh… just kidding, guys…
One interesting thing on the Vanguard SEPP application was the “end date, if known”. I wasn”t sure and it seemed optional, so I left that part blank. Vanguard never asked me to clarify this, so I assumed that leaving it blank was OK.
Yes, my plan will extend beyond age 59.5 because I did not start my SEPP until about age 55.5. Due to this,my SEPP will not enduntil near age 60.5. This is no problem for me but it will be nice to be free of the rigidity of the SEPP program and able to take as much or as little as I need for retirement living expenses when I need it.
My own $0.02 onform 1099R coding is that the accuracy of this issue should be strictly between the tax payer and the IRS… unless the custodian makes a clerical error of some sort, such as sending out the wrong amount, wrong SS number, etc. At no point should the custodian be responsible for the accuracy of anything the tax payer does in setting up the SEPP. If the coding language was set up in this way and the custodians required to code 1099Rs as requested by the tax payer per their SEPP application form, all should be fine and thousands (more?) of 5329s would not need to be filed. Yes, the tax payer could always make a mistake here but so what? Aren”t we responsible for everything else that we file with the IRS? Why should this be any different? I”m not saying that it is but my custodian behaves as if it is.
Ed2007-06-12 18:44, By: Ed_B, IP: [67.170.159.37]

L3: SEPP End & 1099RRe my last message
That should have been box 7 and not box 4 on the 1099R coding. Thinking one thing and typing another doesn”t always work. :-/
Ed2007-06-12 18:50, By: Ed_B, IP: [67.170.159.37]

L2: SEPP End & 1099RRe my last message
That should have been box 7 and not box 4 on the 1099R coding. Thinking one thing and typing another doesn”t always work. :-/
Ed2007-06-12 18:52, By: Ed_B, IP: [67.170.159.37]

L2: SEPP End & 1099RI just got a return email from Vanguard on this issue. They do not differentiate between the last and any other year of a SEPP. They will issue a single 1099R for my ending year of 2010 and that will include both the SEPP withdrawal for 0315 and all non-SEPP withdrawals that follow.
Can this be suitably explained to the IRS via a form 5329 or is another form needed to show that the required SEPP distribution was taken for 0315 and anything taken thereafter is OK and a “normal” distribution?
Ed2007-06-13 16:30, By: Ed_B, IP: [67.170.159.37]

L2: SEPP End & 1099REd,
My take on this is that since you will be over 59.5 for the entire year of 2010, that the code Vanguard will show on your single 1099R will be “7”, that of a normal distribution. If that is what happens, I would not even file a 5329 for 2010.
Back when IRA custodians were taking ownership of accurate coding, they would have coded post age 59.5 72t distributions with a “7” unless they took the position that you modified the plan. Then they would code with a “1” (early) and you would then file a 5329 if you took issue with their position. But if you get a 7 on the 1099R that year, you do not have to file a 5329, and just report the total year”s distribution on line 15 of Form 1040. You would of course also need an 8606 if you have any tax basis in your TIRA accounts.
(Of course, all this assumes the overall situation in 2010 remains as it currently is, and 3 years can be a long time when it comes to tax law :)2007-06-13 17:14, By: Alan S., IP: [24.116.66.98]

L2: SEPP End & 1099RAlan:
Thanks for the reply. I will look forward to Vanguard”s 1099R coding in 2010 with some anticipation. If it is a “7”, then I will not file a 5329.
It is quite likely that they will code that year as a “1” simply because all of my other years will have been coded that way. If I get a “1” code, then filing a 5329 seems appropriate.
I understand that the tax rules may or may not change in the interim. If I were a betting man, then wagering on changewould probably be the better odds bet.
In spite of all this, my SEPP plan is working REALLY well… my account is paying me a good living AND growing at the same time… can”t beat that with a stick! 😉
Ed
2007-06-13 18:14, By: Ed_B, IP: [67.170.159.37]