Terminating a SEPP
L1: Terminating a SEPPHi. I am age 53 and now considering a SEPP under the amortization method. I understand the distributions must continue uninterrupted until the greater of 5 years or 59 1/2 years of age. If I start the SEPP now, can I simply terminate it at age 59 1/2, and at that time continue taking distributions from the same account in amounts greater or less than the SEPP payment schedule at my descretion, or do I have to roll over the terminating SEPP account funds into another IRA at the time of SEPP termination? How does the account custodian terminate a SEPP and what IRS documents are required to accomplish that?2009-05-07 16:57, By: Bill, IP: [184.108.40.206]
L2: Terminating a SEPPYou should have no problem terminating the SEPP and it is not necessary to roll it over to a new IRA. The account custodian will merely code your 1099 differently in teh year you turn 59.5. Once overage 59.5 and prior to 70.5 you can take as much or as little as you want.2009-05-07 17:09, By: Gfw, IP: [220.127.116.11]
L3: Terminating a SEPPin regards to terminating the SEPP, I will be 591/2 in october r and will also have been in my plan 5 years. Should i wait until 2010 to terminate plan. When the 1099 for 2009 is changed from code 2 by custodian, won’t that cause a problem or that year. Concerned how to change but not jepordize my code 2 for las year 20092009-05-07 17:34, By: keani4me2000, IP: [18.104.22.168]
L4: Terminating a SEPPLet’s start with you probably won’t get a code of 2 in any of the years.
Find IRS Form 5329 – you will probably have to file it to get the exemption. Also remember taht a code of ‘2’ is no guarantee – make sure that youkeep good documentation and be ready to justify the plan in an audit – it probably won’t happen, but be prepared.
There is no formal action required to terminate a SEPP. In the year that you turn 59.5 you should receive 2 1099 forms – onefor the period before age 59.5 and one for after. 2009-05-07 17:41, By: Gfw, IP: [22.214.171.124]
L5: Terminating a SEPPi have already been getting my 1099 w/ code 2. ijust don’t understand what procedure will I have to do to get the 2 1099 forms for 2009. Basically what do I do to terminate. People say you don’t have to do anything. Lets say i want to change the amount I am getting after october, what is the best way to accomplish this without problems.2009-05-07 18:00, By: keani4me2000, IP: [126.96.36.199]
L6: Terminating a SEPPI did not see your most recent post when I posted, but some of the stated options would address your concern.
As gfw stated, there is no specific action needed or recommended to terminate a plan, as prior IRS revenue rulings determine when the plan ends. After October you can take out as little or as much as you want to. If your IRA custodian is still issuing a “2” coding in 2015, then they will simply issue another 1099R with a “7” coding for any distributions you choose to take after October. I suggest you take nothing in October itself.
That said, IRA custodians have adopted all sorts of various 1099R treatments in the final stub year. They could code all your distributions as early (1), they could code with the 7 and another with a 2 as stated earlier, or they could even code with a 1 and a 7 depending on their internal procedural changes relative to SEPP plan coding. The trend is for custodians to NOT provide the 2 code at all for distributions within the plan period, but for distributions in the same year after the period ends, they are all over the place. I would not worry about this at all, as you can simply file the 5329 to claim your own exception.
The main issue is not to make an execution mistakes in the meantime, avoiding such things as partial transfers, changes in distribution patterns and amounts etc. The fewer changes you make, the less likely the chance for an error, but the 1099R coding process with the custodians is something that you have very little control over.
2009-05-07 18:16, By: Alan S., IP: [188.8.131.52]
L5: Terminating a SEPPWhile two 1099R forms with different codes is no big deal, there is a way around the two 1099R forms.By 2015, you will already have received 60 months of 72t distributions. This means that you have a choice in 2015 as follows:
1) Take nothing prior to 59.5 (no 1099R for the 72t period of time)
2) Take either the full 2015 annual amount OR Jan through Sept monthy paymentsprior to Oct, and take nothing between Oct and year end (no 1099R for period post SEPP)
More important than the 1099R issueshere is that you have the flexibility in your final stub year of 2015 to take various amounts according to your needforfunds or to preserve assets in your IRA.
Note: In the 2015 SEPP periodyou cannot take distribution amounts BETWEEN the above options, such as 3 months worth. That would introduce a situation more likely to be considered a violation. The IRS has been quite lenient in final stub years, and has allowed the above 3 choices, but I wouldn’t test them further.
You should also re visit this issue at the time, because things could change in 6 years…..
2009-05-07 18:03, By: Alan S., IP: [184.108.40.206]
L6: Terminating a SEPPI do not understand why the recent postings discuss a plan ending in 2015. The 2nd questioner said he will be 59 1/2 in Oct 2009, and has been, or will have been, in the plan for 5 years by then.
I think all of the answers should have referred to what will happen with 2009 form 1099-R coding, and alternative approaches to use in 2009.
I think the discussion about 2015 confuses the issue.2009-05-07 18:22, By: dlzallestaxes, IP: [220.127.116.11]
L7: Terminating a SEPPi am more confused than ever?2009-05-07 19:00, By: keani4me2000, IP: [18.104.22.168]
L8: Terminating a SEPPPart of the confusion could stem, from the fact that you posted a new question in an existing thread. You should have started a new post since similar is never the same and typically results in confusion.
With that said, the answer remains the same… There is no formal action required to terminate a SEPP. In the year that you turn 59.5 you should receive 2 1099 forms – onefor the period before age 59.5 and one for after. However, as Alan stated, different companies handle differently.
If you have additional questions regarding 1099 coding, youshould contactyour IRA trustee/custodian since they are the only ones that can answer how they will be coding your 1099.2009-05-07 19:56, By: Gfw, IP: [22.214.171.124]
L7: Terminating a SEPPDLZ:
The reason Alan talked about 2015 relates to Bill, the OP who will be starting a plan shortly at his age 53. That will take him to 2015.
Form 1099-R coding: Generally the custodian will issue two Form 1099-R’s in the year the participant turns age 59.5. The pre-59.5 distributions will either be coded 1 or 2; post-59.5 distributions will be coded 7. Simply take these two forms to your tax preparer or plug the info into your tax program and that’s all you have to worry about. However, I have found a custodian who does it quite differently.
Putnam Investments will issue a Code 2 for 72(t) plans, even if you have multiple IRA’s in your SEPP Plan Universe and not all are at Putnam. When you complete their Distribution Election Form, simply check the box for 72(t) distributions. When I questioned them about this I was told they rely on the client to determine the validity of their own SEPP Plan. Now here’s a twist you’ll find interesting.
Until you notify Putnam that your SEPP Plan requirements are complete, they will continue to issue the Code 2 for any distributions. I have a client who completed his 72(t) requirements about 9 years ago and he is still receiving Code 2 on the Form 1099-R and his confirmations reflect early distributions under the 72(t) exception. Since my client is about ready to begin RMD’s in about a year, I asked them to change coding to 7, which they did for all distributions in 2009. The client had never questioned the coding issue and I don’t receive copies of the 1099-R’s so I was unaware what was going on. He has never asked to change the distribution amount and I suspect he will continue until RMD’s start.
Jim2009-05-07 20:11, By: Jim, IP: [126.96.36.199]
L8: Terminating a SEPPJim:
Thank you for the clarification about 2015. I missed that aspect referring to the first post, not the changed one.
I assume that you are a financial planner//advisor, or broker. As a tax preparer I always require the 1099-R, and in PA we are required to attach a copy of all 1099-Rs even though retirement plan distributions are not taxable in PA. ( Early distributions are taxable, technicall. But since PA uses a “return of contribution recovery approach”, even those aren’t taxable in most situations because taxpayers are usually 59 1/2 before they get into the taxable aspect abive their contributions.)2009-05-07 20:55, By: dlzallestaxes, IP: [188.8.131.52]