T Rowe Price 72t Expertise
L1: T Rowe Price 72t ExpertiseHello – am new to this great forum, still learningand have a question about my IRA custodian, T Rowe Price. Am planning to begin a 72t SEPP plan in Jan. 2012 (will turn 54 in Oct. 2012.) When I asked TRP how the SEPP program works, the rep wasn’t familiar with SEPP plans,but said she would pass my inquiry on. I then received a letter and in it it says: “Withdrawalsbased upon life expectancy are not technically a series of equal annual payments. Similar to required minimum distribution (RMD) amounts, the annual amount required will change every year.”
My understanding isthat the annual distribution to meeach year is the same amount each yearfor each of the 5 years (starting in 2012), and then a pro-rated amount for the calendar year I turn 59 1/2.Or maybe there is a way to recalculate the amount each year but I would not want to do that as I would feel better (and more likely to be in IRS compliance) with the same exact amount each year.
Would appreciate any advice on this. I just want to be sure they know what they are doing.From their letter it sounds like they will re-calculate the amount distributed each year and I am uneasy about that. Does anyone else use T Rowe Price for their SEPP plan? 2011-07-05 21:31, By: GettingClose, IP: [126.96.36.199]
L2: T Rowe Price 72t ExpertiseWhether or not they know what they are doing makes little difference. It is more important that you know what you are doing. A SEPP plan is always between the IRA Owner and the IRS. First lesson… start reading and know what you are doing.
The minimum distribution method is recalculated every year. The other two distribution methods may (or may not) be recalculated each year – it depends on the level of complexity that you are comfortable with.
Start by reading our FAQ and Planning Pointers – learn enough to ask the right questions the next time you talk to TRP. If at that time you aren’t comfortable with their response, there are other custodians.
Also consider that the person that you talked to knew nothing about a SEPP. Do you have any idea of what information was passed by that person up the ladder that generated the TRP response?
2011-07-05 21:42, By: Gfw, IP: [188.8.131.52]
L3: T Rowe Price 72t ExpertiseThank you gfw for your quick reply. I admit I am still learning and I do realizethat I am ultimately responsible for the correct calculation. Ijust didn’t get a very good feeling from them. And from the letter it sounded like a recalculation each yearwas the only way they were going to do it.Appreciate your response re: the minimum distribution is the one that has to bere-calculated each year and the other two can or don’t have to be.2011-07-05 22:26, By: GettingClose, IP: [184.108.40.206]
L4: T Rowe Price 72t Expertise>> the minimum distribution is the one that has to bere-calculated>> each year and the other two can or don’t have to be.Correct. Regardless of how they are will to do it, plan on: 1) requesting the withdrawal amount that you want; and 2) not getting a code of ‘2’ on your 1099 and filing a IRS form 5329.
Maintain proper documentation and even if audited, you shouldn’t have a problem. My guess is that you talked to a ‘very’ low level employee – as with many companies, getting to someone that actually understands is typically difficult and sometimes impossible.2011-07-05 22:36, By: Gfw, IP: [220.127.116.11]
L5: T Rowe Price 72t ExpertiseThanks again – this makes me feel better.I undoubtedly did speak with a more junior employee.I also knewaboutCode 2 on the 1099 – because TRPsaid in their letter that they would not be checking it (they used to but no longer do) I researched that on this site and know that I willhave to file that IRS form 5329.So with some more research over the next several monthsI expect to be in a good position tostart a 72t come January. I also printed out the SEPP Sample Form for Plan Documentation which is very thorough.Will definitely use it with TRP. 2011-07-05 22:46, By: GettingClose, IP: [18.104.22.168]
L4: T Rowe Price 72t ExpertiseThe quote from the letter certainly appears to be addressing SEPP plans and is incorrect. TRP is usually very good, so this response is surprising.
Having the IRA custodian on the same page as the owner is an advantage only if they know what they are doing. If they do not, then it is a disadvantage. You can stillexecute a valid plan without the custodian even knowing you are doing it. If you want to proceed in that manner, you should be sure that your only IRA account with them is a brokerage account and not a mutual fund only account.
I would also avoid tax withholding on your IRA distributions even if that means you have to pay quarterly estimates. That removes one more variable for which miscommunications have been known to occur.
Would also avoid doing a recalculated plan other thanan RMD plan after you make a one time switch to it. Every year you do a new recalculation increases the risk of an error, and the IRS does not understandrecalculated plans well, even though they have approved their use. With the IRS, you generally do not want to present them with something most of them have never heard of. You will be OK in the end, but will have sleepless nights until the IRS finally tells you “we are pleased to inform you that your plan complies”.
2011-07-05 22:48, By: Alan S., IP: [22.214.171.124]
L5: T Rowe Price 72t ExpertiseHi Alan – thanks for your reply.I agree – re: usually TRP is good and I was surprised as well, hence my concern. And yes paying estimated taxes is best – had my own biz and did that for years so no problem.And also agree that I do not want a plan that is re-calculated each year – like you said – do not want to do anything that would possibly increase the risk of error!!The only other question I have is re: a brokerage account. At TRP I haveRollover, Traditional and SEP IRAs.Was planning only to use the Rollover and Traditional IRAs for this 72t plan and leave the SEP as is for now.As part of the Rollover I have a zero coupon treasury due in August that will soon go to cash within the Rollover – i.e. the bond isin a Rollover brokerage account. Are you saying that I should also change the Traditional IRA to a brokerage account? It is currentlyin a mutual fund only account.Appreciateany feedback. And even once the SEPP starts, I can still re-allocate any of the investments within the two IRAswhenever I want, correct?2011-07-05 23:14, By: GettingClose, IP: [126.96.36.199]
L6: T Rowe Price 72t ExpertiseSee the following:
The partial transfer ruling by the IRS defies logic and has only been a problem a couple of times out of a few hundred thousand of these, but it is still better to avoid them if possible.
Under your current setup, you are planning to use the combined account balances of the rollover IRA and the TIRA to calculate your distribution. Were you also planning on taking your SEPP distributions in some combination from those two accounts or just from one of them? The main difference is two 1099R forms vrs one and having to do a little extra basic math.
If you do not need the full account balance of the above two accounts, you could transfer the excess amount to the SEP IRA, before your start date of course and that would also mean that your account balances for both IRAs in your SEPP will have to be after the transfer.
Note: If you are in a state that does not provide full IRA creditor protection, you should try to keep the rollover IRA separate from the others. That is because under the bankruptcy act, rollover IRAs have unlimited dollar protection. If you commingle them with your other IRAs, then your limit is 1,000,000 plus inflation. You might need the unlimited protection at some point long after your SEPP is completed if you live in one of the 8 states that does not protect IRAs from creditors.2011-07-06 01:07, By: Alan S., IP: [188.8.131.52]
L7: T Rowe Price 72t ExpertisePA used to be one of the states that protected all retirement plans except IRAs, but included them a couple of years ago as well. If your state protects IRA accounts as well, then I do not think that there is any benefit to keeping the Rollover IRA. It used to be set up in case someone went back to work, and the new company accepted accounts to be rolled over into its plan. That is more the exception than the rule now. The more accounts you have under a SEPP plan universe, the more chances you have to get it messed up.
If you are not concerned about the possibility of bankruptcy, I would combine the Traditional IRA accounts.2011-07-06 04:00, By: dlzallestaxes, IP: [184.108.40.206]
L7: T Rowe Price 72t Expertise
I need to disagree with one element of Alan’s last post, specifically …
“If you do not need the full account balance of the above two accounts, you could transfer the excess amount to the SEP IRA,”
A SEP IRA from a business can be transferred to a TIRA or another SEP IRA, but a TIRA can’t be transferred into a SEP IRA. Sohere’s my suggestion:
1) Determine the total dollar amount you need in one IRA to fund your annual SEPP Plan distributions.
2) Transfer the necessary amount from the TIRA to the Rollover IRA (brokerage account platform) as determined in # 1 above. This will become your SEPP Plan IRA Account.
3) If you need more assets, transfer the partial amount from the SEP IRA tothe SEPP Plan / Brokerage account.
4) Make all distributions from the SEPP Plan / Brokerage account.
By following this process you will be able to buy, sell orexchange assets
WITHIN the brokerage account and won’t have to worry about the partial transfer problem Alan explained. Also, your will have one or two IRA accounts from which tomake emergency withdrawls (10% penalty applies in addition to ordinary
taxes) without exposing your SEPP Plan to a possible “bust.”
2011-07-06 16:28, By: Jim F, IP: [220.127.116.11]
L8: T Rowe Price 72t Expertise
You may have been thinking of a SIMPLE IRA, as a SIMPLE IRA cannot accept such rollovers, but a TIRA can be transferred to a SEP IRA; in fact a SEP IRA is just a traditional IRA that has special contribution rules. You can make
either SEP contributions to it or regular TIRA contributions, or both,as well as rollovers.
Here is the latest portability chart. Note that the SIMPLE IRA is the one that cannot receive such a rollover:
2011-07-06 19:53, By: Alan S., IP: [18.104.22.168]