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SOSEPP

SOSEPP – RMD Method

The Required Minimum Distribution method for calculating your Series of Substantially Equal Periodic Payments (under §72(t)(2)(A)(iv)) calculates the specific amount that you must withdraw from your IRA, 401k, or other retirement plan each year, based upon your account balance at the end of the previous year. The balance is then divided by the life expectancy factor from either the Single Life Expectancy table or the Joint Life and Last Survivor Expectancy table, using the age(s) you have reached (or will reach) by the end of the current calendar year. This annual amount will be different each year, since the balance at the end of the previous year will be different, and your age factor will be different as well. Which table you use is based upon your circumstances. If you are single, or married and your spouse is less than 10 years younger than you, you will use the Single Life Expectancy […]

SOSEPP – Fixed Amortization Method

When calculating your Series of Substantially Equal Periodic Payments (SOSEPP), provided for under §72(t)(2)(A)(iv) of the Internal Revenue Code, one of your choices is the Fixed Amortization method. Calculating your annual payment under this method requires you to have the balance of your IRA account. With this balance you then create an amortization schedule over a specified number of years equal to your life expectancy factor from either the Single Life Expectancy table or the Joint Life and Last Survivor Expectancy table, using the age(s) you have reached (or will reach) for that calendar year. The amortization table must use a rate of interest of your choice, but the chosen rate cannot be more than 120% of the federal mid-term rate published by regularly the IRS in an Internal Revenue Bulletin (IRB). Which table you use is based upon your circumstances. If you are single, or married and your spouse is less than […]

SOSEPP – Fixed Annuitization method

When calculating your Series of Substantially Equal Periodic Payments (SOSEPP), provided for under §72(t)(2)(A)(iv) of the Internal Revenue Code, one of your choices is the Fixed Annuitization method. Calculating your annual payment under this method requires you to have the balance of your IRA or 401(k) account and an annuity factor, which is found in Appendix B of Rev. Ruling 2002-62 using the age you have reached (or will reach) for that calendar year. You will then specify a rate of interest of your choice that is not more than 120% of the federal mid-term rate published by regularly the IRS in an Internal Revenue Bulletin (IRB). Once you’ve calculated your annual payment under the Fixed Annuitization method, your future payments will be exactly the same until the SOSEPP is no longer in effect. There is a one-time opportunity to change to the Required Minimum Distribution method. For more details on […]

Early Withdrawal of an IRA or 401(k) – SOSEPP

This particular section of the Internal Revenue Code – specifically §72(t)(2)(A)(iv) – is the most famous of the 72(t) provisions. This is mostly due to the fact that it seems to be the ultimate answer to the age-old question “How can I take money out of my IRA or 401(k) without penalty?” While it’s true that this particular code section provides a method for getting at your retirement funds without penalty (and without special circumstances like first-time home purchase or medical issues), this code section is very complicated. With this complication comes a huge potential for costly mistakes – and the IRS does NOT forgive and forget! A Series of Substantially Equal Periodic Payments, or SOSEPP is just what it sounds like. You withdraw a specified amount from your IRA or 401(k) every year. The specified amount is not always the same (hence “substantially” equal) but the method for determining the […]

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