Timing of distributions – Calendar year/pro-rata question
L1: Timing of distributions – Calendar year/pro-rata question
I’m looking to start a SEPP plan and have a question. If I start my plan on 3/15/18, what are my options for withdrawals in the first year of the plan and the last year? I’m turning 56 this year (DOB is 9/2/1962), so I know that it’ll be a 5 year plan. Do I need to take out the full annual amount in 2018, or can I take a pro-rated amount (i.e. 10/12 of the annual amount)? If I take a pro-rated amount, will I need to take a distribution in the final year of the plan (2023)? If I take the full annual amount for 2018, will I be required to take any withdrawals in the final year of the plan (2023)?
If you could point me to any IRS or other source that discusses this situation that would be greatly appreciated. Thank you!
2018-02-26 21:32, By: mh1361, IP: [184.108.40.206]
L2: Timing of distributions – Calendar year/pro-rata question
With a 5 year plan, you should take the full annual distribution this year and also for 2019-2022. In 2023 up to the March date when you plan ends, take out nothing.
If you pro rated by the month, the IRS would probably not bust your plan, but you should not be taking that risk. This conclusion is related to the Arnold vs Commissioner case several years ago and how it is interpreted. What is very clear is that you must distribute an absolute minimum of 5 years of distributions.
72t plans rules do not exist in one place. RR 2002-62 is the main document, but beyond that the plan rules have evolved from a series of private letter rulings, tax court decisions, and consensus based on IRS actions over the years.
2018-02-27 04:57, By: Alan S, IP: [220.127.116.11]
L3: Timing of distributions – Calendar year/pro-rata question
I agree with Alan. Even though you could take 9/12 of the annual distribution in 2018, and then 3/12 in 2023, I also think it makes more sense to take a full annual distribution this year.
A main reason for this approach is to provide extra money up front that you can/should set aside in case you need some extra money at some time before the 5-year plan is up.
In addition, we usually recommend that you do a “reverse calculation” to determine the Minimum Amount that you need to allocate to the SEPP 72-T plan, and then you may be able to set aside some of your IRA into a non-SEPP IRA account in case you need additional money in the future.
2018-02-27 19:56, By: dlzallestaxes, IP: [18.104.22.168]
L4: Timing of distributions – Calendar year/pro-rata question
Thank you both! I need the max that I can take out so I’ll be keeping it all in one IRA.
2018-02-28 20:58, By: mh1361, IP: [22.214.171.124]