SEPP 72T

Submitted by Bruce Capasso on Fri, 2020-01-24 04:00

Regarding SEPP 72t withdrawals, I plan on starting my first single lump sum withdrawal tomorrow 1/24/2020 based on my IRA balance of $458,830.62 (as of 1/23/2020) at my current age of 54 with a 12/25/1965 birth day which I computed with the January applicable mid-term federal Rate of 2.03% Amortization Method and I get $20,325.72 each year. Does the single yearly withdrawal have the be taken the same month each year or can I take it out any month of each year until I meet the requirement of 5 years or 59 1/2 which I get 6 years until satisfied ? Thanks in advance. Bruce.



Submitted by Bruce Capasso on Fri, 2020-01-24 04:01

Sepp 72t

Submitted by Alan - IRA critic on Fri, 2020-01-24 14:52

  • Did you print out a copy of your 1/23 balance for documentation purposes?  Typically, you would use a month end statement for your account balance since you can always recover that from your broker. You need to save your calculation documentation should the IRS ever question you about the plan. You also need to use your age as of your birthday in the year your plan begins, therefore for a 2020 plan, your age is 55. This should increase your calculation somewhat. Interest rate is correct, but I did not check the calculation result. 
  • Your distribution pattern can be anything – annual, monthly, quarterly, random etc. The only requirement is that your 1099R must exactly equal your calculation. Further, whatever pattern you use can be changed from year to year.
  • Your plan begins on the date of your first distribution shown on your IRA statement. This wlll pre date your received date by a couple days. 
  • Your plan ends on the day you reach 59.5, but you will not have to take a distribution in 2025 prior to 59.5 unless you want to since you will already have taken out 60 months worth by the end of 2024. But you can also make a full distribution in 2025 if you want to, or pro rate the final year by the month (5/12 of the annual). 

 

Submitted by Bruce Capasso on Tue, 2020-01-28 17:58

Thanks Alan. Yes, I did print a balance copy and will retian all documentation. I’m also aware that I will need to file a 5329 each and evey year for explanantion of the distribution as most institutions will not code “2” on the yearly 1099-R.  I can log onto my account any time and print the end of market day balance of my segmented mutual fund which I am using for my SEPP 72t and the market balance is update by 7:00 EST. I have decided to push the withdrwal to Feburary 1st 2020 using the janurary 31st balance for the Amoritized caculation and Feburary’s 120% mid-term interst rate. Thanks again for all that you do.

Submitted by Alan - IRA critic on Tue, 2020-01-28 18:27

Good to extend the start date to Feb to attain some certainty as to which month the first distribution will occur in. But you cannot use the Feb rate of 2.10 because you are limited to the higher of the rates for Dec or Jan (the 2 months prior to the start date) for a Feb start date. Therefore, 2.03 would be your max interest rate as would have been the case if you started this month.

Submitted by Bruce Capasso on Tue, 2020-01-28 19:31

Thanks for reminding me on the 2 prior months interest rate. 2.03% is perfect although at times I admitlely struggle with withdrawing more than something equaling an actual 4% safe withdrawl rate especially given my slighly early retirment at 54 and a longer time horizon. Thanks again Alan. You are awesome sir.

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