Starting New SEPP

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L1: Starting New SEPPHi
I turn 55 in March. I am retiring mid July. I had $650k in an IRA on Dec 31, 2011.
My goal is to supplement my pension from SEPP distribution from this IRA.
1) With MDM method, initial distribution is $18.29k. If I start distribution in March, I understand a monthly distribution to be $1829 for the 10 remaining months of 2012. Correct?
2) This IRA has grown considerably since December. If growth continues and I choose MDM method, am I forced to take the full recalculated distribution for 2013, or could I choose to take less?
Thanks in advance, I’m happy to have found this forum.
2012-03-01 17:36, By: Rob, IP: [199.46.245.232]

L2: Starting New SEPPPoint #1 – if 1st distribution is in March, you could take 10/12s of the annual in 2012.
Point #2 – you recalculate based on attained age and 12/31 balance – you take the exact amount calculated, no more and no less.
Take some time and read our Planning Pointers & Reverse Caluclator – if you don’t need the amount generated by $650k, divide the IRA into two IRA accounts and only use part for the SEPP – using the Minimum Distribution method is seldom the best alternative.2012-03-01 17:47, By: Gfw, IP: [205.178.73.77]

L3: Starting New SEPPSo for point #1.
I had thought originally that the initial year would be amortized for the remaining months from month of first payout, but was then (obviously) later confused. Thanks for unconfusing me.2012-03-01 20:53, By: Rob, IP: [199.46.245.230]

L2: Starting New SEPPCLARIFICATION — #1 — After your initial distribution in March 2012, if you can get the paperwork done in time, there will only be 9 REMAINING distributions in 2012, or 10 monthly distributions in all.
Determine your cash needs for 2012 and 2013, and then future years. You are permitted to take the full ANNUAL total of $ 21,958 ( $ 1,829 x 12) in 2012, if this will give you enough extra to carry you through 12/31/2013 with some emergency funds.
Of course, this depends upon consideration of your 2012 and 2013 tax pictures.2012-03-01 18:26, By: dlzallestaxes, IP: [96.227.217.194]

L3: Starting New SEPPNow you are re-confusing me. You say I can take full annual total (which is $18.29k, not $21.95K as I believe you erroneously caclculated), wher the previous person who responded said it would be 10/12 of the $18.29k.
What is the definitive answer here?
Thanks2012-03-01 21:00, By: Rob, IP: [199.46.245.230]

L4: Starting New SEPPYou have a choice, courtesy of IRS.
Check with your tax and financial advisors as to which is better in your situation.
If you do not have a tax advisor, and or a financial advisor, I suggest you get one or both. The tax code is 50,000 pages !!!
As I always ask, would you do surgery or root canal on yourself, or go to a surgeon or dentist ?
2012-03-01 21:05, By: dlzallestaxes, IP: [96.227.217.194]

L4: Starting New SEPPWhat i said was… “Point #1 – if 1st distribution is in March, you could take 10/12s of the annual in 2012” – I said nothing about the amount that you stated that you calculated.
With a 1st distribution in March, you have 2 options – take the full annual or 10/12s of the annual.2012-03-01 21:06, By: Gfw, IP: [205.178.73.77]

L4: Starting New SEPPIf you will be age 55 by 12/31/2012 and have 650,000, then the calculations are …

Owner Born
3/1/1957

Plan Age
55

Total IRA Accounts
$650,000

SEPP Plan Account
$650,000

SEPP Interest Rate
1.40%

Investment Interest Rate
4.00%

1st Distribution Date
3/11/2012

Date Age 59.5
9/1/2016

5 Year Date
3/11/2017

1st Modification Date
3/12/2017

Minimum Distribution Method

Distribution Factor
29.600

Initial SEPP Payment
$21,959.46

And remember… don’t round the result.2012-03-01 21:11, By: Gfw, IP: [205.178.73.77]

L5: Starting New SEPPI must have ran the calculculator in a mode where it provided 10/12 of the annual, not the full annual.
I am going to hire a CPA to set this up for me.
Thanks for the reponses.2012-03-01 21:56, By: Rob, IP: [199.46.245.230]

L6: Starting New SEPPJust so you, and your CPA, understand this very basic, simple concept :
You are allowed EITHER :
1. Take the entire ANNUAL CALCULATED AMOUNT regardless whether you start in January, March, any other month, or even December. In your case that would be $ 21,948 ( $ 1,829 x 12) using your figures.
2. Take the prorated amount based upon the number of months from the 1st distribution thru 12/31. In your case, starting in March, that would be 10 months’ worth @ $ 1,829 = $ 18,290 regardless whether you took it all in March 2012, or 10 monthly payments, or any other combination that totaled $ 18,290.
There are many nuances to SEPP 72-T, but the above ones do not require a CPA. ( By the way, most CPAs do not have a clue about SEPP 72-T, and do not even know about this website.)2012-03-02 03:55, By: dlzallestaxes, IP: [96.227.217.194]

L7: Starting New SEPPRob,
One more thing to ponder. If you start out with Minimum Distribution method and it is not enough money to supplement your pension over time, there is no way to make it bigger in those 5 years, and annual Min Dist recalc after a bad stock market year can yield an even lower payout for the next year. If you start out with Amortization method, that yields highest payout (altho not as much higher with these low interest rates) and after a year or two or three,you are swimming in money, you can elect a beginning of year SEPP switch to Minimum distribution method going forward, to lower the payout for rest of the term. I did that in my fifth year, and it worked well. Once you switch, and this is the only switch you can make (to Min Dist from either Amort or Annuitization methods) that new method cannot be switched back, and it requires recalculation with newest year end balance and new age each year for the next annual payout. Amortization may give you more flexibility. Good luck.2012-03-02 04:15, By: Ken, IP: [24.63.124.114]

L8: Starting New SEPPThanks for the reponses, guys. I sent in my IRA distribution request form today, and went with the amortization method. I did see a CPA/attorney, and you are right Ken, I actually knew more of the details about this than he.
2012-03-10 04:01, By: Rob, IP: [75.164.11.44]

L9: Starting New SEPPAnd I’ll bet that he did not even know about this website.
You should have “pre-qualified” him by asking if he was experienced with SEPP 72-T plans. ( If you SAID just “SEP PLANS”, he would have thought that you were talking about SEP-IRAs ( Simplified Employee Pensions.))2012-03-10 05:34, By: dlzallestaxes, IP: [96.227.217.194]