I'm just looking on input regarding the timing of the SEPP 72(t) distribution period, and when I can stop taking withdrawals.
My scenario / question:
These will all be 5 equal annual distributions in compliance with 72(t) - (I don't think the IRS cares when I take it during the year, as long as its the same total and I pay my tax!), but the 5-year anniversary of my initial payout won't be until the following year on 12/1/28. My question:
"Do I still need to take a 2028 distribution, even though I will be >59 1/2 (62) by then?"
This would make 6 distributions. But the way I read the rule, seems like I would still need to take that 2028 distribution because I'm still required to take it in the fifth year of the SEPP period which is 2028. I think 6 installments are the result of me starting this process so late in 2023.
I know I can't add or withdraw more or less than the $50,000, but the timing has me confused. I think if I do not take a 2028 distribution, the IRS would consider that failing to take the required distribution during the final year of the SEPP period. I have asked several accountants and don't get a consistent answer.
Thanks in advance. I have been very thorough with tax planning, the calculations, the impact to my IRA value, and this is the right decision, just need a little help on the timing - many advisors, tax people, and planners just aren't familiar with this.
I'm interest in the answer to this question too.
I'm more specifically interested in whether annual distributions can occur anytime during the tax year and still constitute Substantial Equal Periodic Payments (SEPP)? Meaning, if I took my first annual distribution in Sept 2022, then can I take my second annual distribution in Jan. 20024 and it still counts as SEPP?
Thanks!
Under the substantially equal periodic payment (SEPP) exception, the account owner must withdraw a substantially equal amount from an IRA annually for five years or until the taxpayer reaches age 59½. The amount that must be withdrawn is based on the taxpayer’s life expectancy. You must take at least one per year for five years, or until you turn 59 ½. If you miss even a single payment, you’ll owe the IRS early withdrawal penalties on all funds you’ve already taken out under your SEPP plan.
Three safe-harbor methods are available for calculating the annual withdrawal amount: (1) the required minimum distribution method, (2) the fixed amortization method, and (3) the fixed annuitization method. Each method produces a different annual withdrawal amount. Notice 2022-6 lists three methods the taxpayer may use in determining payments under a SEPP.
Modification or termination of the SEPP before the end of the required time period results in a retroactive application of the 10% penalty to all previous withdrawals and interest charges from the date each withdrawal was received until the modification or termination occurred.