72T SEPP – do I always need to keep some cash in the account to cover the distribution
Hello, thank you for taking the time to read my post.
I am considering taking SEPP from my IRA account, and I have a question. If all my money in that account is invested (in stocks, or sometimes CD), how does it work with SEPP? Does that mean that when I receive the distribution the investment would automatically be sold? Or do I need to make sure I always have a portion of the money in cash before the distribution is made?
Thank you very much!
Permalink Submitted by Alan - IRA critic on Fri, 2023-01-20 15:06
Usually the distribution will be made in cash because your total distributions for the year must be for the exact 72t calculated amount. However, you could take in kind distributions of shares during the year for about 95% of the annual amount, then determine what the total value of such distributions were and take the final distribution in cash. You cannot completely control the distributed value of shares because you do not know exactly when the custodian will make the distribution. CDs are more challenging because you must time the maturity dates to avoid penalties. Brokered CDs in a single brokerage account would be OK as this would at least eliminate having multiple CD IRA accounts with banks or CUs. Generally, it is best to keep your plan as simple as possible and avoid illiquid investments. If you plan on automatic distributions, avoid the first and last 5 days of the month due to Dec-Jan distribution failures with no time to correct.
Permalink Submitted by Jeffery W on Sat, 2023-01-21 20:01
Thank you very much for the info and for your quick response! I really enjoy your website and I learn a lot from reading your responses to other people’s questions as well! Much appreciated!