SEPP movement

L1: SEPP movementLet’s say you set up a SEPP in your IRA with Charlse Schwab and withdrawing money equally every year. But a few years later, you’d like to transfer a part of that IRA account to a different broker, say Fidelity. My question is whether this is ok by the IRS. And if you used Life expectancy or Annuitization method, I guess you must used the total balance of 2 accounts to compute for next year payment? 2002-04-19 10:43, By: sonny, IP: [127.0.0.1]
L2: RE: SEPP movementI’m assuming that you have are referring to a SEPP plan – no problem with transferring assets, just keep a paper trail and make sure that you don’t add additional funds or take out non-scheduled withdrawals.>>And if you used Life expectancy or Annuitization method, I guess you must used the total balance of 2 accounts to compute for next year payment?Actually under most plans – unless you have an agressive plan relying on a few of the more current PLRs, the payment, once calculated would remain the same until the end of the plan.2002-04-19 12:00, By: Gfw, IP: [127.0.0.1]

L2: RE: SEPP movementBut don’t you think the best plan is the annuitization that prevents your SEPP to go busted since it always adjusts to your life expectancy, account balance, and interest rate? I can’t imagine why anyone would choose amortization if he/she is 100% in the stock market. What if the stocks go down in half or go no where for the next 20 years?2002-04-19 13:26, By: sonny, IP: [127.0.0.1]

L2: RE: SEPP movementAbsolutely! And I’m glad that you did your homework. It is indeed the only variety that I would adopt ro myself. Have a great weekend :~}2002-04-19 13:30, By: Gfw, IP: [127.0.0.1]

L2: RE: SEPP movementThanks for the reply. There is another problem that I think it might happen in the future: Let’s say I have 2 IRAs, #1 and #2. If I do a SEPP for IRA#1, and later on running out of money, I can claim that the withdrawal calculation was actually based on both IRA#1 and #2. All I have to do is to reverse the calculation to get the exact payment that I want for both IRA#1 and #2. I’m not sure if I say it right but hope you get the message.2002-04-19 13:56, By: sonny, IP: [127.0.0.1]

L2: RE: SEPP movementThat is a very definate NO! Once the IRAs used to fund the plan are allocated, you can NOT add additional funds, comingle with other IRA accounts or take withdrawals that aren’t part of the plan – or it all goes BUST. 2002-04-19 14:01, By: Gfw, IP: [127.0.0.1]

L2: RE: SEPP movementI don’t think these new issues are as cut-and-dried as they might first appear; particularly using a fixed vs. an annually recalculated SEPP using the amortization or annuity methods. Certainly, usign a fixed SEPP with either method presents the risk of “premature account exhaustion”; e.g. the accout runs dry before 5 years or age 59 1/2; whichever is later. In this circumstance, although no direct authority exists; I think the IRS would have no choice but to impose the 10% surtax plus intervening interest. Thus, one selecting a fixed SEPP using these methods had best invest the underlying IRA assets in one of several manners to insure that this does not happen; or at a minimum invest very conservatively to mitigate that risk.On the other hand, automatically choosing the amortization or annuity method with annual recalculation to avoid the risk of “premature account exhaustion” (“PAE”) is not wise either. By doing so, one is simply substituting risks; dumping the PAE risk in favor of volatility. Volatility is something easier handled when the primary investment is human capital or labor; e.g. you are working for a living. Conversely, when the primary investment is monetary capital, volatility can be irreversable and disasterous. What if you need $5k per month and select annual recalculation which results in $6k or $7k per month for a few years and then frops to $3k a month preventing you from making your mortgage payment? Not a good place to be. Instead, I suggest that one examine their finances and allocate annual expenses into fixed and variable categories; then build mutliple SEPPs to match the categories.The other issue raised was could one replenish a SEPP IRA that has suffered from PAE with funds from another non-SEPP IRA in order to keep the SEPP going & therefore avoid the penalties and interest? On this issue I agree with Gfw, don’t do it. Tecnically, I am sure one could devise two SEPP programs with different assumptions but the desired mathematical results where SEPP plan A only relies on IRA A and SEPP plan B relies on IRA’s A & B; only planning to invoke Plan B should IRA A suffer from PAE. Unfortunately, there is a word for this — FRAUD. Now, I doubt you will get prepaid vacation to a hotel with bars on the windows for doing this; however, the fraud penalties make the 10% surtax plus interest look like peanuts.TheBadger2002-04-19 18:01, By: TheBadger, IP: [127.0.0.1]

L2: RE: SEPP movementgfw- Could you please elaborate a bit more on Sonny’s comment as follows?”Date: 4/19/2002 1:26 PM Subject: RE: SEPP movement Message: But don’t you think the best plan is the annuitization that prevents your SEPP to go busted since it always adjusts to your life expectancy, account balance, and interest rate? I can’t imagine why anyone would choose amortization if he/she is 100% in the stock market. What if the stocks go down in half or go no where for the next 20 years?”I am not quite sure how the annuitization method prevents one’s account to go “busted” if the payout is fixed e.g., per annum, but the growth within the account reserve is not “guaranteed” to last through the life expectancy. In other words, let’s say I invested a certain amount in stocks and we have a 1929 style crash. I’m obviously missing something here that’s well, obvious, as my understanding is that the payout amount remains “fixed” and doesn’t “adjust” regardless of interest rates, remaining account balances, or life expectancy.Thanks in advance.endgame2002-04-19 21:41, By: endgame, IP: [127.0.0.1]

L2: RE: SEPP movementBadger, my example is to show how “convoluted” the 72t rules are. As long as the numbers come out right, how can one claim the case is frauded or not, intentional or not. I think the real problem is that the rules should be much clearer and simpler than what they are right now. As million of baby boomers choose to retire early for years to come, many will find 72t an absolute nightmare…2002-04-19 22:45, By: sonny, IP: [127.0.0.1]

L2: RE: SEPP movementJust remember, you can do anything until you get caught. The rules are really quite simple and used as intended present very few problems or issues. But like everything else, it’s when you start pressing the edges and modifying the rules that you run into problems.72(t) provides an exception to the 10% penalty tax if you use an IRA to provide “substantially equal payments” over your remaining life expectancy. When you use their exception, you use their rules. If you want to change the rules, you apply for a PLR for a Yes/No answer – really quite simple.2002-04-20 05:33, By: Gfw, IP: [127.0.0.1]