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Posted by removeps-groups@yahoo.com on April 22, 2008, 9:41 pm
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> > Finally, substantially equal periodic payments. You have to do it for
> > 5 years though, so it eats up your retirement savings. ...
> ...
> > ========================================= MODERATOR'S COMMENT:
> > The SEPP requires five years AND until you reach age 59.5
>
> The "trick" is that one can distribute a sizable IRA into multiple
> accounts so the SEPP amount can be calculated over an initial value of a
> chosen size to limit the collateral damage, so to speak.
So you calculate the SEPP only on one or more IRA accounts of your
choosing? But that still might not work. Say you had 250k in your
IRAs and wanted 5k for hardship reasons just for the near future, say
6 months. If you rollover 5k into a new IRA and take SEPP's from it,
then you have to do it for 5 years or age 59.5. Assuming your age is
39.5, that is 20 years; with a monthly payment of around 5000/20/12 =
$20.83. Actually, my formula is not right because I have to use
either the amortization method, annuitization method, or required
minimum distribution (RMD) method, but I have no idea where to find
those formula. In any case, the monthly payment will be too small.
If you increase the amount in your IRA from which you will do the
SEPP, you'd be eating up your retirement money till age 59.5. Is
there a way around this? It seems that you could make the interest
rate super high, but page 4 of http://www.irs.gov/pub/irs-drop/rr-02-62.pdf
seems to prohibit this.
Anyway, good financial advice is to have 6 months living expenses in
cash reserves.
--
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Posted by dpb on April 23, 2008, 11:08 am
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removeps-groups@yahoo.com wrote:
>
>>> Finally, substantially equal periodic payments. You have to do it for
>>> 5 years though, so it eats up your retirement savings. ...
>> ...
>>> ========================================= MODERATOR'S COMMENT:
>>> The SEPP requires five years AND until you reach age 59.5
>> The "trick" is that one can distribute a sizable IRA into multiple
>> accounts so the SEPP amount can be calculated over an initial value of a
>> chosen size to limit the collateral damage, so to speak.
>
> So you calculate the SEPP only on one or more IRA accounts of your
> choosing? But that still might not work. Say you had 250k in your
> IRAs and wanted 5k for hardship reasons just for the near future, say
> 6 months. ...
No, it doesn't give you complete freedom; it simply allows you to not
excessively draw down a total amount early by making a smaller
distribution than otherwise required if the entire assets are in one
account.
The other rules are still in place of "substantially equal" and the
greater of the time until 59.5 or five years so you can't necessarily
solve the short term need ideally. But then, I didn't claim that... :)
--
--
<< ------------------------------------------------------- >>
<< The foregoing was not intended or written to be used, >>
<< nor can it used, for the purpose of avoiding penalties >>
<< that may be imposed upon the taxpayer. >>
<< >>
<< The Charter and the Guidelines for submitting posts >>
<< to this newsgroup as well as our anti-spamming policy >>
<< are at www.asktax.org. >>
<< Copyright (2007) - All rights reserved. >>
<< ------------------------------------------------------- >>
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Posted by Seth on April 23, 2008, 12:17 pm
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>The "trick" is that one can distribute a sizable IRA into multiple
>accounts so the SEPP amount can be calculated over an initial value of a
>chosen size to limit the collateral damage, so to speak.
I don't understand. Why can't someone with a $10 million IRA withdraw
$50,000/year as a SEPP?
Seth
--
<< ------------------------------------------------------- >>
<< The foregoing was not intended or written to be used, >>
<< nor can it used, for the purpose of avoiding penalties >>
<< that may be imposed upon the taxpayer. >>
<< >>
<< The Charter and the Guidelines for submitting posts >>
<< to this newsgroup as well as our anti-spamming policy >>
<< are at www.asktax.org. >>
<< Copyright (2007) - All rights reserved. >>
<< ------------------------------------------------------- >>
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Posted by dpb on April 23, 2008, 2:12 pm
Please log in for more thread options Seth wrote:
>
>> The "trick" is that one can distribute a sizable IRA into multiple
>> accounts so the SEPP amount can be calculated over an initial value of a
>> chosen size to limit the collateral damage, so to speak.
>
> I don't understand. Why can't someone with a $10 million IRA withdraw
> $50,000/year as a SEPP?
It's under rules for the exception that "Distributions made as part of a
series of substantially equal periodic payments over the life expectancy
of the owner or life expectancies of the owner and the beneficiary."
The requirement is that the withdrawal be in the form of an annuity in
shorthand-speak. You must use an IRS-approved distribution method and
you must take at least one distribution annually for this exception to
apply. The “required minimum distribution method,” when used for this
purpose, results in the exact amount required to be distributed, not the
minimum amount.
It is based on the actuarial tables to disburse the entire account
starting balance over the lifetime of the annuitant and beneficiary if
any; hence the amount to be taken out is not of your choice but based on
age and initial value. At a fixed age, got get more annually you have
to start w/ a bigger pie, but that may deplete the account before
desirable if are too young.
The early distribution is a limited-size loophole.
It's described in Pub 590 and references...
--
--
<< ------------------------------------------------------- >>
<< The foregoing was not intended or written to be used, >>
<< nor can it used, for the purpose of avoiding penalties >>
<< that may be imposed upon the taxpayer. >>
<< >>
<< The Charter and the Guidelines for submitting posts >>
<< to this newsgroup as well as our anti-spamming policy >>
<< are at www.asktax.org. >>
<< Copyright (2007) - All rights reserved. >>
<< ------------------------------------------------------- >>
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Posted by Phil Marti on April 23, 2008, 2:16 pm
Please log in for more thread options "Seth" wrote:
> I don't understand. Why can't someone with a $10 million IRA withdraw
> $50,000/year as a SEPP?
Because Congress is the Mommy, and Congress says so. A SEPP must be based
on life expectancy. See IRS Publication 590.
--
Phil Marti
Clarksburg, MD
--
<< ------------------------------------------------------- >>
<< The foregoing was not intended or written to be used, >>
<< nor can it used, for the purpose of avoiding penalties >>
<< that may be imposed upon the taxpayer. >>
<< >>
<< The Charter and the Guidelines for submitting posts >>
<< to this newsgroup as well as our anti-spamming policy >>
<< are at www.asktax.org. >>
<< Copyright (2007) - All rights reserved. >>
<< ------------------------------------------------------- >>
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