Taking out additional funds by setting up new IRA
L1: Taking out additional funds by setting up new IRAHello first time post
I started a SEPP in July 2009 at age 58 and 3 months and find myself needing to draw additional funds.
I understand that any change in the SEPP distribution amount over the 5 year period will result in a default of my SEPP, thus triggering the 10% excise tax on all SEPP distributions to date plus IRS penalties.
I have heard that it is possible to transfer funds from the SEPP source IRA to a second IRA, leaving sufficient funds in the SEPP source IRA to honor the remaining $58,000 in SEPP distributions. Then I can take a non-periodic distribution from the second IRA without affecting the tax status of my SEPP source IRA.
Thanks in advance for your help!
2012-03-02 01:07, By: Wicodares, IP: [220.127.116.11]
L2: Taking out additional funds by setting up new IRAI think that you misunderstood.
Once you start a SEPP 72-T, you cannot take out any additional amounts without busting your SEPP, with the penalties you mentioned.
What you are probably referring to is a suggestion to separate a traditional IRA into 2 separate accounts BEFORE you start a SEPP 72-T with one, or even both of them. If you then had a SEPP with part of your IRAs, you could have taken taxable distributions also from the 2nd non-SEPP IRA. Then only the withdrawa from the non-SEPP IRA would have been subject to the 10% penalty on only those non-SEPP distributions.
If you had set up 2 SEPP 72-T accounts, then the additional distribution from the 2nd SEPP would only bust that one.
Did you start the SEPP at 58 years, 3 months on your own, or did some misguided advisor suggest it ? I doubt if anyone on this site would have suggested starting a SEPP 72-T at that age.
2012-03-02 03:31, By: dlzallestaxes, IP: [18.104.22.168]
L3: Taking out additional funds by setting up new IRAAs a footnote to DLZ’s comments, if you had setup the 2nd (non-SEPP) IRA before computing your annual SEPP withdrawals from the balance that remained in the first IRA, at this point, since you are well over 59 1/2, anywithdrawals taken now from 2nd (non-SEPP) one would have had no penalty.
KEN2012-03-02 04:01, By: Ken, IP: [22.214.171.124]
L3: Taking out additional funds by setting up new IRAThanks for your quick response! I did this on my own as had to take funds out of my rollover IRA and did not want to incur the excise tax.
Where I am getting hung up is in reading the “Changes to Account Balance” article that is included on this website. Per the author’s interpretation of Rev Ruling 2002-62 the key indicator of a modification to the series of payments is if the taxability of the payments is altered as a result of using one of the three methods.
I am not attempting to 1) replenish my IRA from another IRA, 2) transfer the entire contents of my SEPP source IRA into a new employer’s qualified plan, or 3) roll my annual SEPP distribution into the same or another IRA.
I want to do a rollover or TTTT to a new IRA, while maintaining more than enough funds in the SEPP source IRA to make the remaining payments. I would continue taking the required taxable distributions until the 5 years are up.
However you are saying that once I turn my IRA into a SEPP source IRA, the act of transferring part of the IRA to a new IRA automatically triggers a busted SEPP?
2012-03-02 04:03, By: Wicodares, IP: [126.96.36.199]
L4: Taking out additional funds by setting up new IRAWhile you saved yourself the 10% penalty, and consulting fees, you have locked yourself in for 5 YEARS. That gives you no flexibility in case you were laid off or retired, and then start a new job, hit the lottery, or get an inheritance.
I would bite the bullet, pay the 10% penalty on whatever you take thru 59 1/2, and then be home free with complete flexibility.2012-03-02 04:14, By: dlzallestaxes, IP: [188.8.131.52]
L5: Taking out additional funds by setting up new IRAOk, i am starting to see the light! So I only need to pay the excise tax plus penalty on the distributions that I took up until age 59 1/2? I turned 59 1/2 on October 6, 2010. My total SEPP distributions up until then is $45,373.90 times 10% = $4,574. Plus interest at let’s say 6% on average balance of $22,687 for around 2 years is $2,722 for total tax and interest of $7,296. Does this look about right?2012-03-02 04:34, By: Wicodares, IP: [184.108.40.206]
L6: Taking out additional funds by setting up new IRAPenalty – Yes
Interest — No — It’s 6% on the penalty, not 6% more on the distributions. $ 4,574 x 6%/yr = $ 275/yr = $ 550 not $ 2,7222012-03-02 04:38, By: dlzallestaxes, IP: [220.127.116.11]