72t/SEPP Withdrawal from Etrade

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michaeljc70
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72t/SEPP Withdrawal from Etrade

Post by michaeljc70 »

I am going to take a 72t withdrawal from an Etrade IRA. As far as I can tell going through the IRA withdrawal 90% of the way on their website, I don't have to tell them it is a 72t and I don't have to indicate any of the values in the withdrawal calculation like interest rate, age, method, etc. Is that correct? Obviously I don't want to mess this up.

I may contact them, but they've disabled messaging and their website has a disclaimer about unusually high call wait times.

Edit: In looking at the downloadable form there is a box for " Premature with Exception: Substantially Equal
Periodic Payments Pursuant to IRC 72(t)(2)(A)(iv)." Maybe this is something I cannot do online....
Makefile
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Re: 72t/SEPP Withdrawal from Etrade

Post by Makefile »

michaeljc70 wrote: Sun Nov 28, 2021 11:43 am I am going to take a 72t withdrawal from an Etrade IRA. As far as I can tell going through the IRA withdrawal 90% of the way on their website, I don't have to tell them it is a 72t and I don't have to indicate any of the values in the withdrawal calculation like interest rate, age, method, etc. Is that correct? Obviously I don't want to mess this up.

I may contact them, but they've disabled messaging and their website has a disclaimer about unusually high call wait times.

Edit: In looking at the downloadable form there is a box for " Premature with Exception: Substantially Equal
Periodic Payments Pursuant to IRC 72(t)(2)(A)(iv)." Maybe this is something I cannot do online....
So not just Vanguard then.

Yes, they need to know, because the 1099-R gets a different code (exception applies) since the 10% penalty doesn't apply.
jwfails
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Re: 72t/SEPP Withdrawal from Etrade

Post by jwfails »

They will still mark the 1099 as early withdrawl, just file IRS form 5329 with your tax return.
Topic Author
michaeljc70
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Re: 72t/SEPP Withdrawal from Etrade

Post by michaeljc70 »

jwfails wrote: Sun Nov 28, 2021 12:41 pm They will still mark the 1099 as early withdrawl, just file IRS form 5329 with your tax return.
Thanks. It looks like I enter exception #2 on the form line 2 so I don't get hit with the 10% penalty.
Scorpius
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Re: 72t/SEPP Withdrawal from Etrade

Post by Scorpius »

michaeljc70 wrote: Sun Nov 28, 2021 11:43 am I don't have to indicate any of the values in the withdrawal calculation like interest rate, age, method, etc. Is that correct? Obviously I don't want to mess this up.
This is exactly my concern, how is it calculated. I'm considering at 54 or 55 taking this route to coast me to SS @62 1/2.
Topic Author
michaeljc70
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Re: 72t/SEPP Withdrawal from Etrade

Post by michaeljc70 »

Scorpius wrote: Sun Nov 28, 2021 2:11 pm
michaeljc70 wrote: Sun Nov 28, 2021 11:43 am I don't have to indicate any of the values in the withdrawal calculation like interest rate, age, method, etc. Is that correct? Obviously I don't want to mess this up.
This is exactly my concern, how is it calculated. I'm considering at 54 or 55 taking this route to coast me to SS @62 1/2.
I used two different online calculators and got the same results so I think I am good. I used Bankrate and Etrade. Make sure you use the right interest rate which some calculator sites will tell you or you can Google it. It changes monthly (though I don't know that you have to make the calculation the exact month you start your distributions). It is 1.3% for Nov 2021.
jwfails
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Re: 72t/SEPP Withdrawal from Etrade

Post by jwfails »

I am in my 4th year of 72t withdrawals, IRA with Vanguard, so far no problems. I made a folder with all my calculations in case I get audited in the future. I don’t anticipate any problems.

I retired at 51 and am using the 72t withdraws to get me to SS and a deferred pension at 62.
Topic Author
michaeljc70
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Re: 72t/SEPP Withdrawal from Etrade

Post by michaeljc70 »

jwfails wrote: Mon Nov 29, 2021 8:14 am I am in my 4th year of 72t withdrawals, IRA with Vanguard, so far no problems. I made a folder with all my calculations in case I get audited in the future. I don’t anticipate any problems.

I retired at 51 and am using the 72t withdraws to get me to SS and a deferred pension at 62.
What I don't like is this isn't a set it and forget it and the consequences of a screw up are huge. TDA and Etrade (where I have accounts) don't allow set it and forget it because they have no automatic means to sell securities for the withdrawal. So, I can setup the withdrawals but I have to manually make sure I sell the securities (and they settle) before that scheduled withdrawal date. I will have it on my calendar and not have any withdrawals scheduled too late in the year so there is time to correct it if something goes wrong.
jwfails
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Re: 72t/SEPP Withdrawal from Etrade

Post by jwfails »

It is scary fearing a future IRS audit, I get it.

A lot of people complain about Vanguard being behind on technology and the clunky app, etc., however, I set my 72t up with them over the phone. I have my automatic withdrawal set for the middle of January every year, I have it set to sell out of my bond fund, deposit into my brokerage account and they withhold the minimum tax (10%). If they screw it up I have all year to fix it. So far no problems. Good luck.
Topic Author
michaeljc70
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Re: 72t/SEPP Withdrawal from Etrade

Post by michaeljc70 »

jwfails wrote: Mon Nov 29, 2021 8:51 am It is scary fearing a future IRS audit, I get it.

A lot of people complain about Vanguard being behind on technology and the clunky app, etc., however, I set my 72t up with them over the phone. I have my automatic withdrawal set for the middle of January every year, I have it set to sell out of my bond fund, deposit into my brokerage account and they withhold the minimum tax (10%). If they screw it up I have all year to fix it. So far no problems. Good luck.
Does Vanguard allow you to say my monthly withdrawal is $2k and sell $1k of TSM and $1k of BND automatically to get the $2k? I doubt I'll be going back to Vanguard due to other issues, but that would be a nice feature to have.
jwfails
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Re: 72t/SEPP Withdrawal from Etrade

Post by jwfails »

michaeljc70 wrote: Mon Nov 29, 2021 9:04 am
jwfails wrote: Mon Nov 29, 2021 8:51 am It is scary fearing a future IRS audit, I get it.

A lot of people complain about Vanguard being behind on technology and the clunky app, etc., however, I set my 72t up with them over the phone. I have my automatic withdrawal set for the middle of January every year, I have it set to sell out of my bond fund, deposit into my brokerage account and they withhold the minimum tax (10%). If they screw it up I have all year to fix it. So far no problems. Good luck.
Does Vanguard allow you to say my monthly withdrawal is $2k and sell $1k of TSM and $1k of BND automatically to get the $2k? I doubt I'll be going back to Vanguard due to other issues, but that would be a nice feature to have.
I am not for sure about selling from two different funds.

Mine is set up to sell from IRA dump into brokerage and then I have a auto withdrawal from brokerage to my checking every month just like have a work check. Set it and forget it.
Alan S.
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Re: 72t/SEPP Withdrawal from Etrade

Post by Alan S. »

I suggest discussing your potential 72t plan with your custodian to determine what level of support they provide, if any. That includes checking your calculations or perhaps flagging your IRA as subject to an active 72t plan. If they will do that, there is no downside, and possibly they could prevent you from making a costly error. But basically, the plan is between the taxpayer and the IRS in the final analysis.

Few custodians will provide the 2 coding on the 1099R. It is entirely normal to file a 5329 to override the 1 (early distribution) coding on the 1099R with exception code "02" on line 2.

You should avoid automatic distribution dates very early or late in the month due to having time to correct any errors. If you prefer automatic distributions, a good plan is to set them up as quarterly distributions starting in Feb, then May, August, and November. 4 distributions a year is less prone to error than 12, and if you have 12 then you will have limited time to recheck your annual total and correct any errors that can be corrected. An over distribution can be rolled back within 60 days as long as you have a rollover available. A 72t distribution is not eligible for rollover, but amounts in excess of the calculation are not considered 72t distributions.
Topic Author
michaeljc70
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Re: 72t/SEPP Withdrawal from Etrade

Post by michaeljc70 »

Alan S. wrote: Mon Nov 29, 2021 10:33 am I suggest discussing your potential 72t plan with your custodian to determine what level of support they provide, if any. That includes checking your calculations or perhaps flagging your IRA as subject to an active 72t plan. If they will do that, there is no downside, and possibly they could prevent you from making a costly error. But basically, the plan is between the taxpayer and the IRS in the final analysis.

Few custodians will provide the 2 coding on the 1099R. It is entirely normal to file a 5329 to override the 1 (early distribution) coding on the 1099R with exception code "02" on line 2.

You should avoid automatic distribution dates very early or late in the month due to having time to correct any errors. If you prefer automatic distributions, a good plan is to set them up as quarterly distributions starting in Feb, then May, August, and November. 4 distributions a year is less prone to error than 12, and if you have 12 then you will have limited time to recheck your annual total and correct any errors that can be corrected. An over distribution can be rolled back within 60 days as long as you have a rollover available. A 72t distribution is not eligible for rollover, but amounts in excess of the calculation are not considered 72t distributions.
I plan to just take one annual distribution to keep it simple. The annual amount I will be taking out is less than .2% of my NW so I'm not really worried about losing out on interest/gains. If I really wanted to I could move it to my taxable brokerage account and invest part of it maybe in my bond fund..
Topic Author
michaeljc70
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Re: 72t/SEPP Withdrawal from Etrade

Post by michaeljc70 »

Does anyone know if the date can be changed for the SEPPs? If I withdraw the same amount each calendar year am I okay? I don't plan on changing the date (other than if it falls on a non-business day), but if I make a withdrawal next week and then need money earlier than next December (annual withdrawal) is that okay? I couldn't find anything on the timing of withdrawals. I believe if the annual amount winds up correct that is all that matters.

This is assuming I choose a calculation method where the payment doesn't change from year to year of course.
Typ997S
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Re: 72t/SEPP Withdrawal from Etrade

Post by Typ997S »

Having done a 72t withdrawal from E*Trade, I can tell you that you will need to upload a signed copy of their withdrawal form *and* a copy of the withdrawal calculation using their 72t calculator. They don't tell you about requiring the copy of the calculator output up front, but they will reject the withdrawal request if it's not included. I'll let you guess how I figured this out...

Because of possible snafus like the one above, you definitely want to allow some time between when you make the request and when you need the money and/or the tax year deadline that you are trying to hit. In the case of E*Trade, the process took about a week once everything was in order, so in other words about two weeks from when I started.
Topic Author
michaeljc70
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Re: 72t/SEPP Withdrawal from Etrade

Post by michaeljc70 »

Typ997S wrote: Tue Nov 30, 2021 5:28 pm Having done a 72t withdrawal from E*Trade, I can tell you that you will need to upload a signed copy of their withdrawal form *and* a copy of the withdrawal calculation using their 72t calculator. They don't tell you about requiring the copy of the calculator output up front, but they will reject the withdrawal request if it's not included. I'll let you guess how I figured this out...

Because of possible snafus like the one above, you definitely want to allow some time between when you make the request and when you need the money and/or the tax year deadline that you are trying to hit. In the case of E*Trade, the process took about a week once everything was in order, so in other words about two weeks from when I started.
Thanks. Good to know that.
Typ997S
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Re: 72t/SEPP Withdrawal from Etrade

Post by Typ997S »

michaeljc70 wrote: Tue Nov 30, 2021 5:13 pm Does anyone know if the date can be changed for the SEPPs? If I withdraw the same amount each calendar year am I okay? I don't plan on changing the date (other than if it falls on a non-business day), but if I make a withdrawal next week and then need money earlier than next December (annual withdrawal) is that okay? I couldn't find anything on the timing of withdrawals. I believe if the annual amount winds up correct that is all that matters.

This is assuming I choose a calculation method where the payment doesn't change from year to year of course.
I believe you are correct. I made my first withdrawal in December of 2020 as Tax Year 2020, and then my second (in the same amount) in March 2021 as TY2021. So far so good, but of course I've only filed TY2020 taxes so far, and I haven't been audited...
Alan S.
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Re: 72t/SEPP Withdrawal from Etrade

Post by Alan S. »

Typ997S wrote: Tue Nov 30, 2021 5:32 pm
michaeljc70 wrote: Tue Nov 30, 2021 5:13 pm Does anyone know if the date can be changed for the SEPPs? If I withdraw the same amount each calendar year am I okay? I don't plan on changing the date (other than if it falls on a non-business day), but if I make a withdrawal next week and then need money earlier than next December (annual withdrawal) is that okay? I couldn't find anything on the timing of withdrawals. I believe if the annual amount winds up correct that is all that matters.

This is assuming I choose a calculation method where the payment doesn't change from year to year of course.
I believe you are correct. I made my first withdrawal in December of 2020 as Tax Year 2020, and then my second (in the same amount) in March 2021 as TY2021. So far so good, but of course I've only filed TY2020 taxes so far, and I haven't been audited...
The distribution pattern and frequency can be changed from year to year. All the IRS cares about is that the 1099R reflects total distributions equal to a proper 72t calculation. In addition, the first year total distribution can be 12 months worth or pro rated by the month.
Topic Author
michaeljc70
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Re: 72t/SEPP Withdrawal from Etrade

Post by michaeljc70 »

Typ997S wrote: Tue Nov 30, 2021 5:28 pm Having done a 72t withdrawal from E*Trade, I can tell you that you will need to upload a signed copy of their withdrawal form *and* a copy of the withdrawal calculation using their 72t calculator. They don't tell you about requiring the copy of the calculator output up front, but they will reject the withdrawal request if it's not included. I'll let you guess how I figured this out...

Because of possible snafus like the one above, you definitely want to allow some time between when you make the request and when you need the money and/or the tax year deadline that you are trying to hit. In the case of E*Trade, the process took about a week once everything was in order, so in other words about two weeks from when I started.
Well, 15 days after receiving my request they contacted me and said they needed a signed letter with the calculations. :oops: I was supposed to get my distribution 10 days after the request. It isn't in the instructions...and I included the calculations from their website. I followed the instruction and sent even more. I told them this was unacceptable and I am going to transfer the account. Good thing I didn't need the money this year. Terrible service.
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