SEPP or 72T change
Ok, I am currently age 59. I have a 72T in play on an account I have with NY Life. 72T has been active for 5 years 1 month. For 2017 fed income tax purposes, I would like to reduce my 72T/SEPP payment if possible. I have read researching on line I can execute a one time change in calculation method. Original method was Fixed Annuitization Method, want to switch to RMD and a much lower account balance resulting in a much lower taxable payment (one more payment in 2017). I intend to terminate this 72T in February 2018 after I am age 59.5 years old.
My question is will this one time method calculation change result in re-starting the 5 year clock again on the 72T? Will I be able to terminate this modified (one time change) 72T without any penalty or consequences in Feb 2018 @ age 59.5 years?
Second question: if I can do what I propose without penalty or re-starting the 5 year clock, just what form or forms do I use to make the one time change to my 72T?
Thank you for the help.
Permalink Submitted by Alan - IRA critic on Tue, 2017-07-18 14:28
The one time change does not restart the 5 year minimum term. Your plan terminates at age 59.5, and since you will have taken over 60 months of distributions by the end of 2017, you do not need to take a distribution in 2018, although you can do anything you wish after reaching 59.5. Be very careful with your RMD calculation and keep a copy of your calculation for at least 3 years because your 2017 1099R will be less than the prior years of your SEPP and that could attract IRS attention since they do not often see the one time switch. Use your IRA balance as of 12/31/2016 for the calculation and your age as of 12/31/2017. There are no forms to complete and you will report the 1099R just like you have been except that the amount will be lower. You are probably not getting the Box 7 Code 2 coding anyway, so you will still have to complete Form 5329 to show exception code 02 to justify the penalty waiver. There is also no reporting when your plan terminates in February, as the plan automatically ends at the later of 5 years or age 59.5.