L1: starting outI am 55 years old and working. My wife is 54. I want to start using the minimum distribution method this year.
My first question is which of my retirement funds can I include in the calculation. I have four 401k plans from four previous employers. One plan is all company stock, the other 3 are distributed across mutual funds. I also have an IRA with a bank and a deferred annuity with Fidelity. All have been open for many years.
Which retirement funds can I include in the SEPP calculation? If there are ones I cannot include, what can I do to include them? Thank you. 2009-08-19 17:38, By: scott, IP: [220.127.116.11]
L2: starting outAsk the company where you have the 401-K all in company stock for the “NUA COST BASIS”. If the stock has appreciated significantly in value of the NUA cost basis which is the cost of the shares when they were purchased, then you will save significant taxes if you exactly follow the correct procedures for NUA distributions per the IRS tax code[ IRC SEC. 402(e)(4)]. Hire an experienced tax professional. Also, read J K Lasser YOUR INCOME TAX on this area. It is a couple of pages, and well worth the $ 19.95 cost for the 2009 edition for 2008 tax returns.
Basically you must take a lump sum distribution of the employer’s company stockof that 1 account, and transfer it ( not sell it) to a non-retirement account. Once it is in that account, you can sell some or all shares. You will pay federal income tax only on theNUA cost basis at your ordinary income tax rate in the year of that distribution. That becomes the basis for gain/loss on future sales after the date of the distribution. These capital gains/losses are automatically treated as LONG-TERM by definition, regardless how long you keep them after the distribution, even if you sell them the same day. Long-term capital gains are taxed at 15% in 2009, unless you are in the 15% or lower tax bracket, in which case the tax is -0- in 2009 !!! This is one of the most “taxpayer-friendly provisions” ever enacted in the tax laws.2009-08-19 19:26, By: dlzallestaxes, IP: [18.104.22.168]
L3: starting outThanks for the reply.
I take it from your reply that I do not have to do anything with the other retirement funds, like rollover the 401k monies into an IRA.I can leave them where they are. Please confirm.
Two other questions. On the SEPP calculator, can you explain what the “Use Joint Calculation” is and when it applies?
Also, I want to take my distribution once a year. if I take a distribution in September of this year, do I have to wait until September of next year or can I take it anytime in 2010?
2009-08-19 20:19, By: scott, IP: [22.214.171.124]
L4: starting outYou can leave the 401-K funds where they are, unless that employer/fund administrator requires you to transfer them out.
The main reason for rolling over 401-K funds to an IRA is usually to have more investment opportunities for diversification, or specific securities investments. 401-Ks are usually limited to a limited number of mutual funds.
Your SEPP 72-T distributions in 2010 are restricted to either 100% of your annual distribution, or 4/12 of it for a Sept. start. Either of these can be taken all at 1 time in 2009, or in any amount or frequency in 2009, so long as the total is as indicated above, based upon the amount you want ( 100% or 33 1/3%). In all future years ( except the last one), you can take your annual distribution whenever you want, and in any amounts, so long as the total for each calendar year exactly equals your calculated annual distribution amount, no more and no less.2009-08-19 20:56, By: dlzallestaxes, IP: [126.96.36.199]
L5: starting outAfter checking into any NUA potential as dlz indicated, I would recommend that any SEPP plan you start be done using an IRA. You would need to directly roll over as many of those 401k accounts as needed to fund an IRA with an amount required to generate the SEPP dollars you need. I would also avoid using the RMD method since it produces far lower a SEPP payout than the fixed dollar methods. For example, if you set up an IRA under a SEPP plan using the amortization method, and later want to reduce your payout, you can make a one time switch to the RMD method then. That option is lost if you start with the lower payout method to begin with.
401k SEPP plans are permitted, but plan administrators do not support them well, and you will lose the flexibility the IRA provides with respect to investments, SEPP support from many custodians, and corrective flexibility. Also, if you use 401k plans for a SEPP, each plan would have to be a separate SEPP plan. With an IRA, you can aggregate more than one account with respect to the SEPP plan. Balances that you do not need for your SEPP can be left in those 401k plans for now. They can be rolled over anytime you need them once you have separated from service.2009-08-19 22:00, By: Alan S., IP: [188.8.131.52]
L6: starting outAnother thought here is that companies fail, are taken over perhaps multiple times, or are split into parts (think AT&T, etc.) and it can be easy to lose track of employees and companies. Unless there is a very compelling reason to keep money in an old 401k, doing a trustee to trustee transfer into an IRA makes a lot of sense.2009-08-24 05:11, By: Ed_B, IP: [184.108.40.206]
L3: starting outMy employer tells me that my ESOP stock is not eligible for a NUA distribution. I’m not sure why, is there somewhere I could research this?
Thank you.2009-09-01 14:46, By: Blackwoodt, IP: [220.127.116.11]
L4: starting outYou might try here: http://www.nceo.org/main/column.php/id/338
Also. If you are still employed there are restrictions.I believe you must be separated from service to take a distribution from an ESOP and an ESOP generally is required to purchase your shares back. You would not receive employer stock in a distribution.2009-09-01 16:05, By: jevd, IP: [18.104.22.168]
L5: starting outThank you, I will be retiring, and you are correct they do purchase the stock back upon retirement.2009-09-01 16:10, By: Blackwoodt, IP: [22.214.171.124]
L6: starting outWhether the ESOP itself or the employer is the entity purchasing your shares affects whether you will have the option of NUA tax treatment. Note that attached link which may help in clarifying share status in your situation:
http://www.wnj.com/be_careful_to_preserve_beneficial_taxation_of_esop_stock_distributions-esop_advisor_6-1-2009/2009-09-01 22:33, By: Alan S., IP: [126.96.36.199]