Understanding last payment date

L1: Understanding last payment dateHi, All:
I used the last payment date calculator on this web site to see when I could stop taking SEPP payments w/o incurring IRS wrath. I”m sure that the calculator is right but I”m also trying to understand what it is telling me.
My DOB is 8/6/49 andmy 1st quarterly SEPP payment was received on 3/15/05. Since the amount taken in 2005 is for a full and not a stub year, should not my SEPP run for all of 2005-06-07-08-09? This is 5 years. I will turn 59.5 on 2/6/09. It looks to me as if my SEPP should end on 3/14/09 and not the 3/14/10 that the calculator is telling me. The calculator is also saying that I was 56 years old when I received my 1st SEPP payment when I was actually only 55 1/2. What am I missing here? Thanks for any input.
Ed2007-04-02 20:06, By: Ed_B, IP: [67.170.159.37]

L2: Understanding last payment dateYou should look at the 5 year period as spanning 60 months starting the day you received your first SEPP payment. Therefore, the calculator is correct since the 60th month ends on 3/14/2010, well past the date you turn 59.5. This does not stop you from taking your last payment on 3/15/09 if you take a full annual on that date, but you cannot modify before the rest of that final year has passed. You don”t consider the modification date as the date you take you final payment, it”s the date that you can take a distribution totally unrelated to the restraints of your SEPP plan, ie after the 60 month period.2007-04-02 21:00, By: Alan S., IP: [24.116.66.98]

L2: Understanding last payment dateAlan:
Thanks for the clarification on months vs. years. I appreciate that. I trust the calculators on this web site, so that was not a problem. I used the SEPP calculator here to verify the amount calculated using my IRA cistodian”s worksheet. I was just trying to understand the way that the SEPP time frame was figured.
As for me, continuing to take scheduled SEPP payments for as long as or longer than the SEPP rules require will not be a hardship. I just don”t want to get tangled up in any SEPP problems that can be avoided, as has happened to some tax payers who modified their SEPP payments, even after they were older than 59.5 and *thought* that they had taken payments for the required 5 years.
Another thought that occurs to me is, what happens to the 1099-R for the year in which a SEPP ends? Does the custodian issue 2 1099-Rs, one for payments taken during the SEPP and one for money taken after the SEPP has ended or do they just combine all payments taken during a given year into one 1099-R? Issuing 2 1099-Rs makes sense to me but may not to a custodian.
Ed2007-04-03 09:25, By: Ed_B, IP: [67.170.159.37]

L2: Understanding last payment dateI the last year, if the Trustee/Custodian uses a code of ”2” (which many are not), there would be two 1099s issued to replect the two types of payments.2007-04-03 09:36, By: Gfw, IP: [74.136.109.63]

L2: Understanding last payment dateEd:
Thinkin terms of “Pre-59.5” and “Post-59.5” 1099-R reporting.
If you are Pre-59.5 you are either with an exception or without anexception. When you turn 59.5, regardless of whether you have a SEPP operating or not, then you will get a “Normal Distribution” code for all distributions after the age change. So expect to get two 1099-Rforms for the year you turn 59.5 duringthe time your SEPP is in operaton. You just have to keep up with the date you complete the 5 years of distributions to know when the SEPP is complete.
Jim2007-04-03 11:00, By: Jim, IP: [24.252.195.14]

L2: Understanding last payment date
Gfw:
So far,my custodian has only used the “1” code for my SEPP IRA 1099-Rs. I asked for a corrected one with a “2” code but they refused. Interestingly enough, the IRS suggested that I contact my custodian and request a “2” code. If that seems proper to the IRS, one can only wonder why a lot of custodians do not agree.
Jim:
Ah, pre and post… gotcha. 🙂
I was looking at this as a single issue but it now appears to be 2 issues that are occurring during the same general time period… the pre / post age 59.5 part and the 5-year part. Since I did not start my SEPP until age 55.5, the 5 years will not be up until age 60.5, which will not occur until 2/6/2010. If I continued to take SEPP payments through all of 2010, that would not have any effect upon my current plans.
Thanks for the comments, guys.
Ed2007-04-03 13:34, By: Ed_B, IP: [67.170.159.37]

L2: Understanding last payment dateEd,
I wanted to point out something in your last post. You said mid Feb 2010 was when your SEPP would end. IT may be when your last payment is received, but itcan”t be altered until after mid March 2010, which is 60 months (five years) after that first quarterly payment was received, which has nothing to do with your age, since your plan required the 5 year minimum.
One other thing that JIM said also puzzles me, and maybe someone could clarify it. If all custodians started coding all IRA withdrawals that were taken after one passed the age of 59.5 as normal distributions, then it would seemthat the IRS could not detect a person (after age 59.5) taking out an amount that did not match their SEPP planwithdrawal on plans thathad not yet completed the five year minimum. If that were true, it seems that the “late starters”could just do what they wanted after passing the age 59.5 finish line, and probably never get detected, since the 1099-R for monies paid to them after age 59.5 would be on 1099-R”s that say normal distribution.If they got caught they would have a problem, but the 1099-R paper trail would not require the form 5329 on those payments. Would they really start issuing “normal distribution” 1099-Rs to those still working on a five year minimumSEPP plan after turning 59.5?KEN2007-04-04 06:30, By: Ken, IP: [151.199.44.76]

L2: Understanding last payment dateKen:
The calculator on this site shows my SEPP ending on 3/14/2010 and my 1st date of legal modification date as 3/15/2010. I will be 59.5 on 2/6/2009 but as you note, the full 5 years of my SEPP will be the later of the 5 years or age 59.5, so it controls when my SEPP ends. Personally, this seems to be over developed in the sense that the goal of Congress would have been met by having a SEPP last until age 59 or 60 (forget this half year nonsense) and call it good. Adding the 5 year rule complicates the issue but does not seem to add anything useful to retirement planning or to operating the tax system that I can see. As a BIG fan of the KISS principle, this could be streamlined without causing any additional problems. If people are going to fritter away their retirement money, they are just as likely to do it regardless of age or how long they have had a SEPP, IMHO.
My thought is that the IRS will resolve this 1099-R coding issue and probably sooner rather than later. From what I have read, the IRS would like to streamline the tax process and make collections and document review faster, cheaper, and less labor intensive on their end. Having virtually all SEPP owners filing form 5329 only because custodians no longer use the “2” code on their 1099-Rs seems silly to me. If the IRS orders them to use a 2 code whenever a customer requests it, that should settle the issue. Perhaps it would help if the IRS told the custodians that doing this does NOT create any liability on the part of the custodians and that issues of that type are strictly between the IRS and the tax payers.
As to messing with one”s SEPP because there may or may not be an accurate paper trail, that sounds to me like playing with dynamite and matches… not a good combo! Especially since the only way to know if there is a BIG BOOM in your future is to let it happen. Hopefully, Alan or The Badger will weigh in on this issue as I also would be interested in their comments.
Ed2007-04-04 14:53, By: Ed_B, IP: [67.170.159.37]

L2: Understanding last payment dateEd… You have to understand, nothing with the IRS works in simple fashion.
Several years ago the code of ”2” on a 1099 was freely given by most every Trustee/Custodian- it was the IRS that messed up the process, not the Trustees & Custodians.
And, the IRS knows that the problem is easily solved, all they (the IRS)have to do is publish guidelinesfor the Trustees & Custodians as to when, and under what circumstances, a code of ”2” should be placed on a 1099.
They know the solution, they just haven”t acted.
2007-04-04 15:42, By: Gfw, IP: [74.136.109.63]

L2: Understanding last payment dateWell, perhaps a blizzard of 5329s will stir them to action. One can always hope, anyway.
Ed2007-04-04 15:55, By: Ed_B, IP: [67.170.159.37]

L2: Understanding last payment dateKen:
The question you raised about how the IRS could track a SEPP Plan only through Form 1099-R reporting is interesting and I have thought about this myself. Maybe one of the CPA folks has first-hand information they can share to clear the air. However, as you suggest, how is a “late starter” going to get caught is really playing “IRS roulette,” a game I can”t endorse. To my knowledge the IRS does not have anyone”s SEPP Plan documents on file as a normal course of business, but they would ask for these docs during an audit.
Let me share how my last client’s 72(t) plan termination in 2004 went down. The custodian had issued Code 2۝ on all 1099-R forms. I used the Last Date Calculator۝ on this site and confirmed with the custodian the same date. After that date we transferred to a new custodian and reduced the distribution amount. (My client turned 59.5 in 2002 and he received two 1099-R forms; one coded 2 and the other coded Normal.۝) For 2004 the client received one 1099-R from the old custodian for the total amount of distributions and it was coded Normal.۝ He also received a Normal Distribution۝ coded 1099-R from the new custodian.
My best guess _ and I emphasize the word guess۝ _ is with all custodians starting to use Code 1 which requires filling Form 5329 with the tax return, that process could allow the IRS to track the 5-year aspect of SEPP Plans.
Jim2007-04-05 07:38, By: Jim, IP: [24.252.195.14]

L2: Understanding last payment date>My best guess _ and I emphasize the word guess۝ _ is with all custodians starting to >use Code 1 which requires filling Form 5329 with the tax return, that process could allow >the IRS to track the 5-year aspect of SEPP Plans.
This seems reasonable to me as well. Thinking along these lines was what prompted me to file an amended return for tax year 2005 recently. I was pretty sure that I did not oweanyextratax for 2005 but I had not filed a 5329 for that year. I did pay the tax due on my SEPP payments, excluding the 10% penalty. Once I became aware that I should have filed a 5329 for tax year 2005, I did so to ensure that there was a solid paper trail on my SEPP. I didn”t want to file a 5329 in 2006 without the 2005 filing in case the IRS looked at this later and decided that my SEPP actually started in2006 and not in 2005. Although there is quite a bit of other documentation that I could bring to bear if my SEPP was ever questioned, my thought is that ifa tax payercan avoid IRS scrutinythey arebetter off to do so.
Ed
2007-04-05 16:43, By: Ed_B, IP: [67.170.159.37]