Switching from monthly to annual disbursements

You are here:
< Back

L1: Switching from monthly to annual disbursements
I’m currently getting a disbursement of approximately $8,000 per month from a 401(k), subject to 72(t). I’ve been getting the monthly disbursements since 2007. I just received my January 2012 monthly disbursement.
If I contact the custodian and ask them to stop making monthly disbursements, could I then ask for a lump sum disbursement in December such that the total annual amountis the same? In other words, if I get a disbursement in December for 11 x $8000, the
total annual disbursement would be the same as before. Would this violate the SEPP requirement? As far as I know, I’ve only reported annual amounts previously on tax returns so I don’t believe the IRS even knows the disbursement are monthly.
2012-01-04 19:21, By: Bob33, IP: []

L2: Switching from monthly to annual disbursements
You can switch disbursement frequencies each year, or multiple times during any year, so long as your annual amount is the same.
However, we do warn you that any Dec distribution should be no later than the 10th or15th so that you can correct any error before 12/31.
Also, we warn people that take a limp sum early in the year could be a potential problem of running out of money, and then taking more and busting the plan.
You seem to have a good handle on your situation, and do not need any money before year-end.
However, if you invest in stocks and equity mutual funds for Dividend Income and Capital Gains ( growth), then I suggest taking your distribution now for 2012, even a “distribution in kind” of the mutual funds or securities in your SEPP IRA account(s).
This will save you taxes because the distributions from the SEPP IRA will be taxed at ordinary tax rates ( 25%–35%), while Qualified Dividends and Long-Term Capital Gains outside your retirement plan will be taxed at 15%. Further, losses inside retirement
plans are not deductible, but losses in regular accounts are deductible against other gains, or up to $ 3,000 against other income per year.
2012-01-04 19:39, By: dlzallestaxes, IP: []

L3: Switching from monthly to annual disbursements
Thanks for the reply. I’m particularly interested in this consideration for the following reason: I was planning to switch this year to a RMD method. The amount I would be eligible for would be just a bit more than one month. I can now wait until later
in the year to decide. If I decide to switch to RMD, I can wait until December and get a single small disbursement to add to the January 2012 disbursement. If I decide sometime in 2012 that I really need to continue under the current disbursement plan, I
can do that as well. The best of both worlds.
2012-01-04 19:50, By: Bob33, IP: []

L4: Switching from monthly to annual disbursements
Very astute planning. Most people start SEPP 72-T plans because they need the money, often after leaving or losing their job.
You are apparently in a more fortuitous situation.
2012-01-04 19:56, By: dlzallestaxes, IP: []