SEPP at 55
I am 55 June 20, 2016. In order to to be required to take only five 72t SEPPs, not six, do I have to wait until I am 59.5 in December to take the first annual payment. The calculators show at age 55 taking six payments, but I will be 55.5 in Dec 2016 and will be 59.5 in Dec 2020. Or can I go ahead this year (in June 2016 ) and take my 1st annual payment and take the 5th and final payment in 2020 in which I will turn 59.5 in on Dec, 20, 2020.
Entering 55, I get 6 years of payments from Bankrate’s calculator.
Permalink Submitted by Travis Echols on Fri, 2016-06-17 13:58
I meant I will be 55.5 in Dec 2016 and 59.5 in Dec 2020.
Permalink Submitted by Alan - IRA critic on Fri, 2016-06-17 18:24
You can do the 5 annual distributions, with nothing in 2021. Your plan starts on the date of your first distribution. Based on your DOB, your plan will end 5 years after your first distribution. While there are 6 calendar years during the term of your plan, you have various options. If you pro rate by the month your 2016 distributions, then you would also pro rate your 2021 distribution so that your total distributions would equal 60 months worth. You could also take a full non pro rated distribution in 2016 through 2020, and take out nothing in 2021. If you wanted to you could add a full annual distribution in 2021, as 5 years of distributions is the minimum, not the maximum. So you have some flexibility in how much you can withdraw in 2016 and again in 2021.
Permalink Submitted by Travis Echols on Mon, 2016-06-20 20:06
Thanks, Alan. TO make sure I understand, so if I don’t prorate, I can take five payments starting in 2016 and ending in 2020. The “later of 59.5 or five years” req’t is satisfied if I turn 59.5 in Dec 2020, even if I take the first annual payment before Dec 2016? Can I take the first annual payment in 2016 now (in June 2016), before turning 59.5, and still be OK with 5 payments only?
Permalink Submitted by Alan - IRA critic on Mon, 2016-06-20 20:55
Yes, you can start the plan now. The date you take your first payment is when the plan begins, and therefore determines when the 5 year count begins. It will also affect the interest rate you can use for the plan calculation. If you took a full annual distribution this month, your final distribution could be anytime you wish to take it in 2020.
Permalink Submitted by Travis Echols on Wed, 2016-06-29 18:12
Alan, your “The date you take your first payment” I take to mean the “year” I take the first payment? So regardless of when in 2016 I turn 55.5, five payment years later I will be 59.5 (in 2020) and thus can take my first annual distribution (of five total) any time this year (2016) and take the final payment anytime in 2020? So the month in the year I begin annual distributions doesn’t matter? Right?
Permalink Submitted by Alan - IRA critic on Wed, 2016-06-29 20:33
No, the 5 years begins on the exact date your first distribution is made to you. For the next 5 years which includes 4 full calendar years and two partial years (this year and your final year), you can only take out distributions allowed by 72t plan rules. Your first year can either be pro rated by the month of your first distribution or you can take out a full annual amount. If you want to start in July, you can take any partial distribution you want as long as by 12/31 of this year your total distributions equal either a pro rate of the annual figure or 100% of the annual figure. If you take a full distribution this year and each year including 2020, your distributions are complete, but your plan still runs until 2021. That means that until the 5th anniversary of your first distribution (eg July, 2021) you cannot take a distribution that is NOT a 72t distribution. This can be pretty confusing, because there are options. But to keep things simple, you might want to take a full annual distribution this year, and take out nothing in 2021 until after your plan ends. Also, interest rates are published every month. If you start in October instead of July, you cannot use the May or June rate, which because of the Brexit situation might be higher than the interest rates available to you for an October start. To lock in the higher interest rate, a distribution must be taken before that rate expires and you can no longer use it. If you post what you want to do, I will tell you if that is OK or not.
Permalink Submitted by Travis Echols on Thu, 2016-06-30 18:45
329,698 72t acount, 1.71% from May 2016 interest table. Take 14287 in July, 2016, 14287 in 2017, 2018, 2019, and 2020.
Permalink Submitted by Alan - IRA critic on Thu, 2016-06-30 21:06
Calculation is correct and distribution pattern is fine. But you should not round the figures. If the initial balance used is exactly 329,698.00, then your annual distribution should be 14,287.14. Be sure to request the initial distribution in plenty of time so that is it actually distributed by the end of July. If you ever decide to set up automatic monthly distributions, have them made between the 5th and 20th of the month so you have time to correct things if the custodian misses one, particularly the Dec one.