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Let's say that you have successfully negotiated the pitfalls of setting up your SEPP payments. Now assume that you have reached the magic day (either 5 years plus 1 day from your 1st SEPP payment or 59 1/2 plus one day, which ever is longer) and you want to take out lots more. How do you make it stop? Is there some form that must be filed, or do you just start taking out money?

Thanks.

arrete
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arrete asks,

Let's say that you have successfully negotiated the pitfalls of setting up your SEPP payments. Now assume that you have reached the magic day (either 5 years plus 1 day from your 1st SEPP payment or 59 1/2 plus one day, which ever is longer) and you want to take out lots more. How do you make it stop? Is there some form that must be filed, or do you just start taking out money?

Your IRA custodian should have a form for you to fill out when you request an IRA distribution. For SEPP distributions, you check "exception code = 2", for a normal (past age 59.5) distribution you check "exception code =7".

intercst



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Arrette assumes,

...you have reached the magic day (either 5 years plus 1 day from your 1st SEPP payment or 59 1/2 plus one day, which ever is longer) and you want to take out lots more. How do you make it stop?

Simply inform your custodian to stop the automated periodic payments, if you used such a service.

Note that you are not required to use a custodian's automated payment service. Indeed, by doing so, you're relying on the custodian to make the payments according to schedule.

This could be dangerous, as it's the taxpayer's responsibility, not the custodian's, to ensure the periodicity of the SEPPs.

So, many SEPP-takers simply call up their custodian on a periodic basis and inform the custodian that they're taking a SEPP (and thus qualify for "exception code 2". With this technique, once you've reached the five-year or age 59 1/2 criteria, no further action on your part is necessary.

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Duggg and intercst
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Thanks!
For some reason I thought it had to be automated through the holder of the IRA. It sounds like it shouldn't be any harder than quarterly tax payments.

arrete
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arrete wrote,

For some reason I thought it had to be automated through the holder of the IRA. It sounds like it shouldn't be any harder than quarterly tax payments.


If you take a single annual IRA distribution it should be only one-quarter of the effort required to male quarterly estimated tax payments. <grin>

intercst
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If you take a single annual IRA distribution it should be only one-quarter of the effort required to male quarterly estimated tax payments. <grin>

I am a bit confused about estimated tax payments. Does the gov't really care whether you've made four quarterly estimated tax payments, or simply that the tax money is paid by year-end?

I know that in theory it's supposed to be a "pay as you go" system, but in practice I don't see how they would know if I received non-salary income (e.g. stock sales, option exercises, IRA distributions) throughout the year or just in December.
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So, many SEPP-takers simply call up their custodian on a periodic basis and inform the custodian that they're taking a SEPP (and thus qualify for "exception code 2". With this technique, once you've reached the five-year or age 59 1/2 criteria, no further action on your part is necessary.

Or you have a pain-in-the-butt custodian like I do (T. Rowe Price) who will not note exception code 2 because they say they can not verify it is SEPP, thus causing further action on my part.

Gary

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