SEPP end date
L1: SEPP end dateI set up a SEPP in January 2009. I was 54 years old in May of that year. I was going to continue the withdrawls until January 2014, the year I turn 59 and a half. I am doing some tax planning (understanding tax lawcould and probably will change to one degree or another by then) and have a question regarding meeting the 5 year/ 59 and a half rule:Would I break my SEPP ifmy last withdrawl was January 2013 instead of January 2014? The withdrawl in January 2013 would bemy 5th withdrawl but atthat time it would be after only 4 years.My 5th year is up in January 2014.I am age 59 and a half in December 2014.It is my understanding I can use the whole calendar year to make a withdrawl but if I wait until December 2014 I will meet both the 5 year rule and the 59 and a half rule. Therefore, no withdrawl is actually required in 2014. Is this correct?
The reason for not wanting to take the withdrawl in January 2014 is this: I wantto roll over some of themoney intoa Roth IRA in December of 2014 (after age 59 and a half) and therefore do not want to be pushed up into a higher bracket by taking theJanuary 2014 withdrawl.2012-04-16 20:23, By: sandy, IP: [220.127.116.11]
L2: SEPP end dateThe regulation is 5 YEARS = 60 MONTHS. It is NOT 5 ANNUAL PAYMENTS.
You are ok, though. No payment required in the 6th CALENDAR year.2012-04-16 21:17, By: dlzallestaxes, IP: [18.104.22.168]
L3: SEPP end dateAgree with Dlz as long as you will have taken 5 full annual distributions during the initial 5 years.
Easy way to think of the end of the SEPP plan using the 5-year rule is from the date of the 1st distribution… 365days * 5years + 2days for good measure. Five annual distributions are required and no additional distributions or changes are allowed until… 365days * 5years + 2days2012-04-16 21:27, By: Gfw, IP: [22.214.171.124]
L4: SEPP end dateI also agree that you do not have to take a 2014 72tdistribution before your plan modification date, however you do not have a 5 year plan as your modification date is not until a couple days after you reach 59.5.
You could actually do your 2014 conversion in January, 2014 if you wanted to since a Roth conversion is not considered a modification of your plan per the att’d copy from the IRS Regs of 1.408A Q 12:
Q12. Can an individual convert a traditional IRA to a Roth IRA if he or she is receiving substantially equal periodic payments within the meaning of section 72(t)(2)(A)(iv) from that traditional IRA?
A12. Yes. Not only is the conversion amount itself not subject to the early distribution tax under section 72(t), but the conversion amount is also not treated as a distribution for purposes of determining whether a modification within the meaning of section 72(t)(4)(A) has occurred. Distributions from the Roth IRA that are part of the original series of substantially equal periodic payments will be nonqualified distributions from the Roth IRA until they meet the requirements for being a qualified distribution, described in 1.408A6 A1(b). The additional 10-percent tax under section 72(t) will not apply to the extent that these nonqualified distributions are part of a series of substantially equal periodic payments. Nevertheless, to the extent that such distributions are allocable to a 1998 conversion contribution with respect to which the 4-year spread for the resultant income inclusion applies (see A8 of this section) and are received during 1998, 1999, or 2000, the special acceleration rules of 1.408A6 A6 apply. However, if the original series of substantially equal periodic payments does not continue to be distributed in substantially equal periodic payments from the Roth IRA after the conversion, the series of payments will have been modified and, if this modification occurs within 5 years of the first payment or prior to the individual becoming disabled or attaining age 59 1/2, the taxpayer will be subject to the recapture tax of section 72(t)(4)(A).
If you decide to do that, convert to a new Roth IRA, not an existing Roth. Your TIRA custodian will issue a 1099R coded 2 (exception applies for conversions). Your option to recharacterize that conversion later on will also be intact in the event the conversion takes losses.
If you choose to wait until after reaching 59.5 (11/2014), the only difference is that your conversion 1099R will be coded 7. Either wayyour 72t plan is intact, although I think if you convert earlier, you might have to provide the above Regsreference to the IRS, since conversions within the term of a 72t plan are quite rare.
2012-04-16 22:39, By: Alan S., IP: [126.96.36.199]
L5: SEPP end dateA little late with this, but thank you for the additional information. I didn’t know a Roth conversion could be done without breaking a SEPP, although I prefer to keep things as simple as possible. In my case, I wasn’t going to convert my own IRA (the one involved in the SEPP) to a Roth but we were going to convert a portion of my wife’s IRA to a Roth (her IRA is not part of a SEPP). I just wanted to make sure I didn’t have to continue the SEPP withdrawls from my own IRA in the same year we start converting my wife’s IRA to a Roth (which would throw that year’s Roth conversion dollars into a higher tax bracket).2012-04-27 03:45, By: sandy, IP: [188.8.131.52]
L6: SEPP end dateThat is not the wording in your initial posting where you did not mention your wife’s IRA, or even being married.2012-04-27 04:55, By: dlzallestaxes, IP: [184.108.40.206]
L7: SEPP end dateThe new information does not change anything – you can stop your 72t distributionswith the 2013 distributionand convert your wife’s IRA in Jan, 2014.
What you cannot do is to take any distributions from your IRA that are NOT72t distributions until the plan modification date. But converting her IRA is simpler than converting your own because the 1099R will be for her and totally separate from your 72t plan. It will be less confusing to the IRS than converting within a 72t plan.2012-04-27 20:58, By: Alan S, IP: [220.127.116.11]