|
Question |
Answer |
|
Do I have to consider all
my retirement assets
when calculating SEPPs? |
No, you can withdraw money from one IRA account while leaving another intact. You can even split
existing IRA plans into two or more new plans, so that you can take only the distribution stream you
require from one IRA, while allowing the rest of your IRA assets to continue to grow. Your financial or
tax advisor can help you structure your accounts so that they provide the income you need while
protecting your long-term financial security. |
|
What if I want to stop
distributions or change
the amount of my
payment? |
Once you’ve started SEPPs, you should not modify your distributions in any way until after you’ve turned
59 1⁄2 or taken distributions for five consecutive years, whichever is longer. The payments may not be
changed for any reason other than death, disability, or the one time IRS exception that permits taxpayers
that currently calculate their SEPPs by annuitizing or amortizing their IRA accounts to make a
one-time election to switch to the life expectancy method in any subsequent year. Before this required
distribution period ends, a retroactive premature distribution penalty of 10% plus interest will be applied
to all distributions up to that point. This is in addition to ordinary income taxes. After the required
distribution period—five years or when you’ve reached age 59 1⁄2, whichever is longer—you can modify or
stop the payments without penalty, but you will still be liable for ordinary income taxes on the amounts
you withdraw. Ask your financial or tax advisor for guidance on the best distribution strategy for you. |
|
Why can’t I just cash out
my retirement plan? |
You can, but you may pay substantial taxes and penalties. If you are under age
59 1⁄2 when you take a
distribution from a qualified retirement plan, you’ll owe ordinary income taxes at the federal, state and
local levels, plus a 10% penalty. Unless you rollover the distribution to an IRA, your employer will also be
required to withhold 20% of your distribution against income taxes. As a result, you could end up with
half or less of what you started with. Moreover, you may seriously jeopardize your long-term financial
security by liquidating your retirement assets. |
|
What happens if I die or
become disabled? |
Your SEPPs will stop if you pass away or become disabled. Under these circumstances, distributions are
not subject to the 10% premature distribution penalty. |
|
Can I take SEPPs from my
employer-sponsored plan? |
You can, after separation of service, but rolling over into an IRA has several advantages. Please reference
Van Kampen’s brochure, “What you need to know about Rollover IRAs” to learn more.
|
|
Can I continue to deposit
contributions or
transfer/rollover money
into my IRA from which
I am taking SEPPs? |
No, you cannot continue to contribute to an IRA you are currently taking SEPPs from. Contributions or
transfers into or out of the IRA could be considered modifications which would trigger the retroactive
10% penalty. Always consult a financial or tax advisor for more information. |
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