Set up a SEPP?
L1: Set up a SEPP?Hello everyone…..First off , just want to thank everybody for this great website….very educational and insightful!…I’m looking for some direction here….I retired in August’09 after I turned 55, and still have my retirement funds with my former employer, a local union here in NYC….balance is approximately $270,000 as of 12/31/09….I”ve determined I’d like to supplement my pension income by $1000/month….My question is this: Am I better off rolling over the money into an IRA and setting up a SEPP through my broker , or just keeping the money where it is and taking $12000/year out of the retirement fund?…My understanding is that I won’t have to pay the 10% penalty, as I’m ‘separated ‘ from my job….Any advice is greatly appreciated!!2010-05-07 17:18, By: JSI1954, IP: [184.108.40.206]
L2: Set up a SEPP?IF you can avoid the formal requirements of a SEPP plan by tapping your retirement funds without penalty, you should take advantage of that. It will eliminate the risk of ever paying the penalty because you busted a SEPP plan either inadvertantly or were simply put into the position of having to change your distribution.The key with your particular plan lies in your access to flexible annual distributions under which you can change your distribution pattern or amount at least once per year. Even better if you can change it more often than that. If the plan offers that now, you might also inquire if there is any reason to expect that provision to change. If the plan requires a lump sum distribution, you would probably inflate your marginal tax rate and it would cost you as much or more than the penalty. In that case, you would probably opt for the IRA rollover, partition that IRA into two accounts and begin the SEPP from the account with the balance that will generate your desired annual distribution.Many brokers or advisors would like to get their hands on your retirement assets, so they will often push for the IRA rollover when it is not in your best interests to do so.2010-05-07 19:30, By: Alan S., IP: [220.127.116.11]
L3: Set up a SEPP?Thanks for your input , Alan….you’re exactly right….one reason I’m considering keeping the money where it is , is because of all the fees and charges my broker (TD Ameritrade) will hit me with…I would only take 12k/year , is that what you mean by a lump sum distribution, or do you mean the entire amount?? Thanks again!2010-05-07 22:20, By: JSI1954, IP: [18.104.22.168]
L4: Set up a SEPP?By definition, “lump sum distribution” means taking out your entire balance. It does NOT mean taking your entire annual distribution from a SEPP 72-T once a year.As already stated, you should not set up a SEPP 72-T if you can take enough from your plan each year as you need, either because the annual amount is enough, or you can vary the distributions each year in frequency and total amount.2010-05-08 00:32, By: dlzallestaxes, IP: [22.214.171.124]
L4: Set up a SEPP?Hello,JSI1954:
Yes, TD Ameritrade does charge some fees for their services but they seem quite reasonable to me compared to those of most other brokerages. My wife has her IRA there and it has worked out pretty well for the past several years. We also have accounts at Scottrade (cheapest) and Vanguard (all around best).
One question that I would ask is “What fees are you paying now?”. Some plans pay for the fees but most just pass them along to the individual investors. These can be buried deeply in bureaucratese and not easily found. If you dig deeply enough, though, you can often find them. My former employer did not pay for the fees in our retirement plan but they used their size and financial muscle to get the custodian to charge the lowest fees possible, so that was of some benefit.
Another question would be “Are you satisfied with the investments offered in your current plan?”. In many cases, the range of investments is fine and not a problem. In others, they can be quite restrictive. If so, then there might be an advantage to having an IRA and SEPP, if you got considerably better investment choices and lower fees out of the deal.
Ed2010-05-08 01:16, By: Ed_B, IP: [126.96.36.199]
L5: Set up a SEPP?Thanks, everyone for the valuable advice and info…It’ll make my decision a lot easier….Regards…John2010-05-08 03:14, By: JSI1954, IP: [188.8.131.52]