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Starting SEPP's after I turn 55.
Old 10-31-2016, 07:45 AM   #1
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Starting SEPP's after I turn 55.

I FIRE'd in June this year. DW FIRE'd in 2015. We sold our home, bought a 41.5 foot 5th wheel and are pulling it with a 1 ton Dodge Dually around North America. It's been a great summer exploring state and national parks in Colorado, New Mexico and a little in Texas (our home) state we were are heading for the holidays with family.

We have been living off our cash and taxable investments up until this point. However, when I turn 55 this December, I'm going to start SEPP withdrawals from my one mine TIRA, leaving the ROTH's, DW's TIRA and taxables alone to grow.

I checked with my brokerage account (ETrade) and they have a form to fill out. They asked me to put my calculations for the SEPPS on the back of the form. Seems really informal.

I'll probably need to talk to one of their IRA experts but I wonder if anybody else had to do the same? Up until now, I've never done the calculations with pen and paper with the formula. I've just used on line calculators and spreadsheets to estimate my FIRE amount.

I'm wondering if they need to see all the math or just the basic info like my age, method, investment total, interest rate, base month and year etc..

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Old 10-31-2016, 10:52 AM   #2
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You're talking about using the 72t provision to avoid the 10% early withdrawal penalty correct? If you haven't already I would suggest you take a look at 72t.net for some good info. It's been awhile since I looked into it but it was my impression that most brokerage companies will leave it up to you to perform the necessary calculations, they don't want to be liable for any mistakes in the calculations. There are several methods you can use to calculate a withdrawal to meet the 72t requirements. It is very critical that it is done correctly, apparently the IRS is very unforgiving if the calculations don't meet the 72t provision.
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Old 10-31-2016, 07:28 PM   #3
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+1 to what zinger says.

I originally was going to make use of a 72t/SEPP withdrawal plan but then decided to go the Roth route instead. Since I can withdraw Roth contributions and conversions without penalty prior to age 59 1/2, this seemed like a lower risk strategy.

The fact that we have been using the Mega Backdoor Roth strategy to make contributions to the 401k, via annual after-tax contributions of up to ~$50,000, has bumped up the Roth balances to allow my pre-age 59 1/2 withdrawal plan without resorting to 72t/SEPP.

With the 72t plan you have to do the initial planning correctly and then you also need to continue to execute it properly throughout the years that it is active. No changes after you start it, if memory serves, otherwise the whole thing can be disqualified and you would need to pay the 10% penalty plus back interest on all the prior withdrawals.

The 72t.net site, as mentioned above, has a good deal of information on all this.

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Old 11-01-2016, 08:17 AM   #4
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Yep. 72t(SEPP). The bulk of my investments are in my lone TIRA. I have been reading the specifics of the 72t(SEPP) for over a decade so I'm familiar with the 3 IRS methods to calculate the SWR. I will be using the amortization method.

I was just surprised ETrade asked to see my calculations using the formula :

r ( 1 + r )^E
Annual IRA = P x ------------------------
Withdrawal
( 1 + r )^E - 1

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Old 11-01-2016, 08:37 AM   #5
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You could ask Etrade if filling out the calculations on the form are required or not.

If they are required, then you check other custodians such as Vanguard or Fidelity to see if they also require you to provide them calculations or not.

If not, you could consider a Rollover to another IRA custodian.
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Old 11-01-2016, 01:39 PM   #6
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I'm going to execute an SEPP with Fidelity next year. Already did a dry run and they will calculate by the method I choose.
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Old 11-01-2016, 07:30 PM   #7
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I have been using 72t withdrawals since I retired 10 years ago. It did not seem that difficult (with help from the 72t.net site). I set up the spreadsheet thru 2017 back then and have only had to add end of year balances each year since. Schwab did not ask to see any info and does no calculations - when I withdraw money I just make sure to check "Type 1" instead of the default "Type 2".
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