Which account balances can I use to determine SEPP amount
L1: Which account balances can I use to determine SEPP amountI have a mutual fund IRA and IRA rollover “account”. Each “account” has 3 mutual funds with their own account number, such as 584-58794851 IRA and 578-18515785 IRA Rollover. So in total there are 6 mutual funds with each having their own account number.
1) I plan to start a SEPP within May 11. Can I use any of the 6 mutal funds to determine SEPP balance?
2) Do I need to use the Dec 31, 2011 balances? Or 3/31/2011? Or the balanceon the date I take first monthly distribution?
2011-05-04 00:29, By: Bigtex at lake, IP: [22.214.171.124]
L2: Which account balances can I use to determine SEPP amountYou need to confirm with the custodian whether you have 2 IRA accounts or 6 IRA accounts, because that information is critical to having a valid SEPP. You cannot apply part of an IRA account balance to a SEPP. it is all or nothing. When you get the answer, you will then be able to partition these investments into one IRA account that has a balance that will generate your SEPP distribution needs. You may also need to perhaps transfer part of your fund shares in one of these mutual funds in order to get that total balance correct. Of course, if you need to use your total balance, it does not matter since your SEPP would be composed of the entire total of the assets and it would not matter if you have 2 or 6 IRA accounts.
Therefore, to your questions:
1) You can only do that if you do not end up using part of an IRA account, so you need to clarify what you have per the above.
2) You can use the balances of all the IRA accounts that will be part of your planas of any date 12/31/2010 or later which you can document with a copy of a statement, or an on line printout. There can be no contributions, transfers,or distributions between the date you select and the date of your first distribution. You can also use 4/30 if you wish, since the balance on that date may be higher than earlier dates if you have stock mutual funds. If you need to do a transfer to get the balance right as indicated above, you cannot use a date prior to the completion of the transfer for your account balance.
The interest rate you select is more limited in time than the account balance. The interest rate for a May initial distribution must be no higher than the higher of the March or April applicable rates.
Note: If you receive a Form 5498 for each year, look to see what account number shows on each of those forms. That would also indicate whether you have 2 or 6 IRA accounts.
2011-05-04 03:25, By: Alan S., IP: [126.96.36.199]
L3: Which account balances can I use to determine SEPP amountMy custodian tells me each mutual fund is its own account. It has its own number. I did ask forthe monthly statements be split into two statements. One for IRA and one for IRA rollover. I plan to use 3 of the mutual funds from one of these for SEPP.
These mutual funds have activity such as dividend payments into them. Surely itis okay and not considered contributions, transfers,or distributions from or into the account. Right?2011-05-04 21:59, By: bigtex at lake, IP: [188.8.131.52]
L4: Which account balances can I use to determine SEPP amountI still would not be totally sure that the firm understands your question. We know that obviously each specific fund has it’s own account number, but is that just a fund number or is it an actual IRA account. The fact that they will divide these funds into two statements with one of them labeled as a rollover IRA adds to the doubt. I am not saying that you only have 2 IRA accounts here, but you need to be totally sure because if you are wrong the IRS may not tell you right away. They might wait until you are several years into your plan and the 10% penalty amounts to thousands. So just be totally sure. Check out those 5498 forms to be sure that they confirm what the firm is telling you.
The mutual funds dividends are not a problem, whether you have them reinvested in more shares or paid into a money market fund. It is only a problem if they are transferred into a different IRA account that is NOT part of your SEPP plan. If paid out to you in cash, the dividends are part of your SEPP distributions and you should avoid that situation because it creates a serious management problem. Have them reinvested in more shares, and just sell those shares if you want to rebalance your investments. The only thing that counts for your SEPP is distributions that are paid OUT of the IRA to you, and of course you cannot make new contributions or transfers into the accounts.
If your SEPP is composed of 3 IRA accounts, each with a different fund, it is OK to directly transfer funds between them. For example if you wanted less of fund A and more of B, you could sell A and have the funds directly transferred into B. Since both A and B are part of your plan, the transfers between them are OK.
2011-05-05 01:40, By: Alan S., IP: [184.108.40.206]
L5: Which account balances can I use to determine SEPP amountThanks, I will clarify with my custodian. Let me see if this helps. I made a distribution last year and the account number of my 1099-R was the mutual fund account number I took the funds from. I cannot find a IRA and IRA Rollover number on my statements or on line. Only the six mutual fund account numbers. Now the two statements say IRA or IRA Rollover on them but no number.2011-05-05 02:25, By: bigtex a lake, IP: [220.127.116.11]
L6: Which account balances can I use to determine SEPP amountInstead of wasting everyone’s time, and just tell us which mutual fund family the IRA(s) are invested in. If invested thru a broker, tell us which broker. Those of us who are professional advisors probably have a client from the same company(s), and can look on a statement to tell you how to find the account number(s).
For example, Vanguard has an account number, preceded by the fund number. Regardless of the number of funds, they are all part of the same account number. Similarly, broker’s statements have an account number, and list each of the funds separately.2011-05-05 04:37, By: dlzallestaxes, IP: [18.104.22.168]
L7: Which account balances can I use to determine SEPP amountMy custodian replied that all my mutual funds are in one IRA (both IRA and IRA rollover). If I split my IRA between two custodians, would it be considered two IRA accounts. Surely there is a way to split one IRA into two or more pieces.2011-05-05 17:07, By: Bigtex at lake, IP: [22.214.171.124]
L8: Which account balances can I use to determine SEPP amountThe only way that you can still have an IRA ROLLOVER account is if the account is titled as “IRA ROLLOVER”. You cannot make contributions to an IRA ROLLOVER ACCOUNT.
You can roll over employer retirement accounts or 401-Ks to an existing IRA ACCOUNT, but it cannot then change its name to IRA ROLLOVER. From a practical standpoint, I do not think that there is any real benefit for anyone to have a IRA ROLLOVER ACCOUNT. Many employers will not accept these being rolled into their retirement funds, and most employer retirement plans have alimited number of investment options. In almost all cases you are better off having your retirement accounts in IRA accounts rather than employer plans, once you leave that employer.
I would not get hung up on the IRA vs IRA ROLLOVER situation. Just set up a 2nd account, and transfer enough investments so that 1 account has what you need to set up your SEPP 72-T plan, and the other account has the excess. Period. End of story.
You can have as many IRA accounts as you want, at 1 or more custodians. ( For example, some wealthy people set them up with different kids as the beneficiary of each one, especially if there is significant difference in ages, or if there was a re-marriage, and he wants to provide some IRA amount for the 1st or 2nd wife, or for a parent or sibling who have financila needs, especially if he is helping them during his lifetime.) 2011-05-05 17:34, By: dlzallestaxes, IP: [126.96.36.199]
L9: Which account balances can I use to determine SEPP amountSorry, for you the emails. Below is the reply from American Century.
But it sounds like from your email, that I can ask them to split the IRA into two accounts and use one for SEPP. Please confirm one final time and thanks for all your help.
“The IRS considers all your IRAs to be one, no matter how many accounts in different funds you have in total. Rollover and contributory traditional IRAs are considered to be the same. If you have no intention of rolling the Rollover accounts to a new company plan, you may even remove the Rollover identifier and they will all be listed under the same registration.”2011-05-05 17:42, By: bigtex at lake, IP: [188.8.131.52]
L10: Which account balances can I use to determine SEPP amountThe quote from Am Century is correct with respect to the taxation of IRA distributions, to the pro rating of any after tax basis, and to the contribution limitsfor IRAs.
It is NOT correct with respect to federal bankruptcy limits if you are in a state that does not protect IRAs in full(extraneous to this discussion),to certain RMD calculations, or to the execution of 72t (SEPP) plans, where the IRS definitely does not look at all your IRA accounts as one.
Your situation could be simplified somewhat if you used the reverse calculator on this site to determine if you need to use all your IRA assets to fund your SEPP or whether you do not need all the assets and can then partition the IRA accounts by direct transfer into one with the required balance to fund your SEPP and the other to be outside your plan and available for later emergency needs or perhaps to start a second plan later on.2011-05-05 18:08, By: Alan S., IP: [184.108.40.206]
L9: Which account balances can I use to determine SEPP amount
Sorry, but I’m still confused. Amer Cent. sent the following message. Yet you mentioned I could split my IRA into two accounts and calculate SEPP balance from one of the IRAs and keep the other out of the SEPP.
They said the IRA is in my SSO number and cannot be split. Please, help me. Can I or not split out one IRA account into two for SEPP. Or just use part of one IRA balance for SEPP?
For the IRS, when performing calculations such as the 72-T or a Required Minimum Distribution, you only have one IRA and it cannot be split so those calculations can be based on only part of your overall total. We have split the Rollover from the contributory accounts so they are on two separate statements. This does not imply they are two separate IRAs.2011-05-06 16:50, By: bigtex at lake, IP: [220.127.116.11]
L10: Which account balances can I use to determine SEPP amountI cannot believe that American Century can be so mis-informed. They are correct that Required Minimum Distributions are based upon ALL TRADITIONAL IRA accounts everywhere.
They are completely wrong re SEPP 72-T. The annual calculated amount is based upon ONLY the IRA accounts that YOU designate as being included in YOUR SEPP 72-T UNIVERSE.
You have4 choices :
1. Ask for a supervisor and/or their COMPLIANCE department to get them to agree to understand the tax law.
2. Open an account at a broker who will accept the American Century mutual funds, and transfer either the amount needed for your SEPP 72-T or the excess that you do not need. I would go with whichever place understands the nuances of SEPP 72-T.
3. Open 2 accounts at another broker, and transfer everything to them.
4. Sell all of American Century (no tax effect), and open 2 accounts at a broker, Vanguard, Fidelity, American Mutual, or another mutual fund family that does understand SEPP 72-T.2011-05-06 17:04, By: dlzallestaxes, IP: [18.104.22.168]
L11: Which account balances can I use to determine SEPP amountLet me take a shot at this.
Apparently you have two traditional IRA’s; one composed of your annual contributions over the years and one, the Rollover IRA, created when you transferred your 401(k) or other qualified plan from your former employer after you separated from their employment. What’s the difference? If you go to work with a new employer who has a qualified plan, and if their plan allowed transfers IN, then the Rollover IRA funds and/or assets could be used to “jump start” funding the new qualified plan. It used to be called a “conduit” IRA because it was used to transfer assets / funds from one company’s qualified plan to a new company’s qualified plan. Now here’s the kicker: If you combine the Contributory IRA and the Rollover IRA, then the funds are said to be “comingled,” and you lose the ability to transfer funds into a new company’s qualified plan. You could also make a “Traditional IRA” type contribution to the “Rollover IRA” and thus lose the “Rollover” nature of this IRA. Once you “comingle” assets into a “Rollover IRA” it becomes a regular “Traditional IRA” forevermore. I don’t think your intent is to use the “Rollover” feature to fund a new company’s qualified plan so this is just nice to know information. Now to your problem.
You have listedtwo “account numbers.” I suspect if you look closely on the account designated “Rollover IRA” you will find one of two situations: Each mutual fund will have a “Fund number” listed before the dash and the “Account number” listed after the dash will be the same for each fund listed.In your Rollover IRA”578-18515785″ would be “578” to designate the specific mutual fund and “18515785” is the “Account Number.” If you havethree funds in this account then look for two more “Fund Numbers” and the same “Account Number” as the “578” fund.
The second situation would be three completely different numbers for both the “Fund Number” and the “Account Number” listed on the “Rollover IRA” page. I work with several different Mutual Fund sponsors and I have only found one, John Hancock, who issues account numbers for each different, possible type of fund. This is a nightmare, especially for SEPP Plans. If American Century really does issue separate account numbers for each fund, then I now know of two families doing this rediculous procedure.
Here’s the problem I see: Let’s assume you use the “Reverse Calculator” on this site to determine how much you need inyour “Traditional IRA,” and you transfer the needed amount either into or out of that account using the “Rollover IRA” as your “Non-SEPP Plan IRA Account” and you start your plan by making your first distribution in May, 2011. Keep in mind that you have three funds with three separate account numbers in your one Traditional IRA that comprises your “SEPP Plan Universe.” Now two years later you decide to transfer half of the assets from one of the mutual funds into one of the other existing mutual funds. You have made a “partial transfer” from one fund INTO an existing IRA account. This will cause a “busted plan” as I understand the results of the two PLR’s we have floating out there that have caused real problems for SEPP Plan management.
What’s the solution for this second situation? Open a brokerage account type IRA which will have only one account number. Then transfer your American Century funds into this new account. Now you are free to manage the account by making exchanges with any American Century fund, even ones you don’t own now, and to buy and sell assets as needed to better manage your account.
Sorry about the extended reply but that’s the only way I can explain my understanding of your situation.
Jim2011-05-09 21:44, By: Jim, IP: [22.214.171.124]