ever use SEPP to access IRA $ early?

[tallguy]

Jan 28, 2018 23:13:07 GMT -5 CCL said:

This part of the link: "Whether you pay the penalty or not, SEPP distributions are taxable as income--even distributions from a Roth IRA."

It didn't make any sense to me. Or maybe I'm just getting confused lol?

I would guess that he must be talking about taking earnings out before 59.5.  Or conversions before the five-year rule was satisfied.  Either way, I would not call a blogger authoritative on the subject.

[Deleted]

Jan 28, 2018 23:18:42 GMT -5 CCL said:

Jan 28, 2018 23:05:03 GMT -5 minnesotapaintlady said:

From what I was reading it's really easy to screw up the withdrawal amount and then you owe penalty on EVERYTHING.  Not just the screw up part.  Plus, you're obligated to stay in the SEPP a minimum of 5 years or until your 59 1/2 whatever is LATER.  So it could be that you start this at 52 and then want out for whatever reason like it becomes a tax issue where it wasn't when you started and you're stuck.  In order to get out you have to pay the penalty on everything from the start.  

I guess I'm thinking I could set it up with Fidelity, most likely with same yearly payment amount, then leave it be. I can't see any reason why I would ever need to change it. Of course if someone younger than me started payments they would be looking at a longer time commitment, so that might be trickier if they don't have other income sources.

Can you just pick a yearly payment amount?  I thought you had to go by whatever the calculations spit out?  And for the RMD option you have to recalculate every year. 

I was thinking it would be more of a problem for someone younger if there was a change of income where they wouldn't want to be pulling from the IRA anymore.  They go back to work or inherit some money and the 25K (or whatever) they're pulling from the SEPP is getting taxed up the wazoo.  

[CCL]

The IRS says you can do a "fixed annuitization method" which is "The fixed annuitization method consists of an account balance, an annuity factor and an annual payment.... Once an annual distribution amount is calculated under this method, the same dollar amount must be distributed in subsequent years."


www.irs.gov/retirement-plans/retirement-plans-faqs-regarding-substantially-equal-periodic-payments

[hoops902]

I haven't done it, but we administer 72t & 72 q payments (qualified and non-qualified accounts). It's not nearly as messy as people here seem to make it out to be, unless you do a rollover in the middle of the payments. Otherwise your financial institution should just set you up and you'll get automatic payments. It's not like you have to remember to take them (it's slightly more complicated if you move funds, because then you have another carrier you have to make sure does the payments based on the prior carrier's calculations of the payment amount). In general, the biggest downfall is that you're depleting your retirement accounts "early".

It can also become a problem if your financial institution either isn't set up to automate them (at which point they may do it manually, lots of risk) or if their systems just aren't very good.  I've only ever seen it be an issue when people move funds during the payout period though.

[hoops902]

Jan 28, 2018 23:31:46 GMT -5 minnesotapaintlady said:

Jan 28, 2018 23:18:42 GMT -5 CCL said:

I guess I'm thinking I could set it up with Fidelity, most likely with same yearly payment amount, then leave it be. I can't see any reason why I would ever need to change it. Of course if someone younger than me started payments they would be looking at a longer time commitment, so that might be trickier if they don't have other income sources.

Can you just pick a yearly payment amount?  I thought you had to go by whatever the calculations spit out?  And for the RMD option you have to recalculate every year. 

I was thinking it would be more of a problem for someone younger if there was a change of income where they wouldn't want to be pulling from the IRA anymore.  They go back to work or inherit some money and the 25K (or whatever) they're pulling from the SEPP is getting taxed up the wazoo.  

You can't just pick an amount. There are a few ways you can calculate it, some keep the amounts specifically constant, some fluctuate slightly (but still falling within substantially equal). You can choose which approved method you go with (as long as your financial institution can handle that calculation for you, otherwise you're running some risk it will be incorrect). The only one that really fluctuates is life expectancy...since your life expectancy changes every year slightly.