L1: Terminating planI would like to terminate my SEPP plan and start a new one with another IRA that has a higher balance. I am willing to pay the 10% penalty for busting the plan, which I”ve had for 14 months. When I called my broker, she told me I could not terminate my plan, but could stop taking monthly withdrawals. Other than paying the penalty and interest on the funds I”ve received thus far, are there any other tax issues associated with that account? In subsequent years, is there a penalty for taking zero withdrawals from an existing account?
Thank you.2008-02-27 07:37, By: NSB, IP: [22.214.171.124]
L2: Terminating planCHANGE BROKERS. Move your account to Vanguard, Schwab, or someone who understands SEPP 72-T, because this broker obviously doesn”t.2008-02-27 10:14, By: dlzallestaxes, IP: [126.96.36.199]
L2: Terminating planWhat your broker said, “When I called my broker, she told me I could not terminate my plan, but could stop taking monthly withdrawals.” seems like a valid statement. As I interpret it, there is no form to file or switch to throw to “bust” a plan. If you stopped taking distributions from the current plan, then transfered this IRA to a new account, then you have “busted” your plan and you simply deal with the penalty and interestwhen you file your 2008 taxes. You may not have to actually transfer the IRA but this would be a good paper trail item to further indicate your intent to bust your plan. You can continue to use your current borker and custodian.
Now you simply start a new plan.
Jim2008-02-27 12:25, By: Jim, IP: [188.8.131.52]
L2: Terminating planThank you for responding. My account is with Vanguard, and the woman I spoke with is an IRAretirement specialist. I called back and asked for a SEPP specialist, who terminated mycurrent account, acknowledging I would have to pay a penalty and interest. He alsoestablished a new SEPP on my other IRA account, which will give me a much larger monthly payment. Thank you for all of your help and hopefully I am on track now for the next five years. Thanks!2008-02-27 12:48, By: NSB, IP: [184.108.40.206]
L2: Terminating planOne more thought..
If you weren”t getting a large enough payout from original SEPP plan IRA, why not just keep orig SEPP going and avoid the penalty on what was withdrawn to date, and use the calculator on this site to compute how much would need to be in a 2nd SEPP IRA that you would start now, to get you the difference per year thatgets you to the total you need. Then split the current Non-SEPP IRAso a new IRA Acct is opened (direct transfer) for 2nd SEPP and it just has that initial balance neededto start the 2nd SEPP plan, and do a SEPP on it. I think the payment for two SEPP”s that add to same total is about the same as one larger one, and you may have had a much higher Max Interest Rate usedon the old one from last year, so it would take less money in the total of original SEPP and the 2nd SEPP than you probably needed to put in the start over one to get same total payout, and penalty is avoided, and you still have a 3rd IRA that can be used for one time emergencies where you just pay the penalty on that withdrawal. You may still be able to reverse what you did yesterday… KEN
”2008-02-28 08:53, By: Ken, IP: [220.127.116.11]
L2: Terminating planKen has the best plan. What is different here from most taxpayers is having the additional IRA funds outside the current plan, which accords you plenty of flexibility. The only downside is maintaining two totally separate and independent plans and making sure that no executory errors are made such as trying to combine them.
Check what Vanguard has done with the current plan IRA, it”s not clear whether they are simply designating it as a non SEPP IRA now or are transferring the funds to another account. Even if they transferred the funds to a different account, you can continue the plan as long as it is a NEW account that does not already hold funds. This way you pay no penalty, and your reporting is not going to change much because Vanguard is not coding your distributions with the exception code anyway. You will just file the 5329 showing the exception applies to the new total. But be sure to document your calculations for the new plan as you hopefully did for the original.
2008-02-28 15:34, By: Alan S., IP: [18.104.22.168]
L2: Terminating planThank you so much for your advice. I contacted a financial advior in my city who specializes in IRAs and we are sitting down tomorrow to sort out all of this. I am taking printouts of your advice with me, and I”m sure we can come up with a good solution.I know I should have visited an advisor long before now, and it was insane for me to think I could manage this simply by reading blogs. Sometimes, folks like me have to hit an expensive wall of pain before admitting they can”t handle it and need help.
Thanks again for all of your assistance. 2008-02-28 17:36, By: NSB, IP: [22.214.171.124]
L2: Terminating planAnother tidbit to bring to this person… If you have already taken a distribution from that NewIRA SEPP, it would be much cheaper to pay the 10% on that one or two (months?) and tell new IRA SEPP custodian that you “misfired” and need to end this new plan–stop payments(like you did with first one), then do the transfer of the amount you need from that large 2nd IRA to a NEW 3rd IRA that will fund the 2nd set of SEPP payments. Then tell Vanguard that you need to continue with orig sepp, and if they missed a payment, just have them make it up so total for the year 2008 is correct.Keep in mind that IRA experts are not necessarily 72(t) SEPP experts. If you get that sense, I think you already have the info you need to fix this on your own.From many posts I have seen, don”t let this personconvince you to set up an annuity to cover your payments with your IRA money. (Annuitization method to calculate payments from an IRA for a 72(t) is not what I mean when I say avoid annuities…) KEN2008-02-29 09:02, By: Ken, IP: [126.96.36.199]