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Essentially, SEPP works like this. After adding up the total value of your traditional IRAs (if you have rolled over your company’s 401(k) plan into a rollover IRA, then you may keep that separate), a computer program will calculate the monthly amount that you may take from your accounts at a fixed percent, usually between five and nine percent. Remember to keep your Roth IRAs separate. By agree- ing to take the SEPP-established amount as monthly withdrawals, you agree to the terms of the program. You must not alter the pay- ment amount for five years, or until you are 591/2 years old, whichever comes last.

If you do change anything about your monthly dispersements, the entire amount you have taken will be subject to the 10-percent penalty tax. By abiding by the terms, you will avoid the penalty. Of course, whatever you take will be subject to regular income taxes. Therefore, if you are 57 and wish to participate in the SEPP program, you will have to take the same amount from your accounts until the five years (60 payments) are up. Likewise, if you began taking SEPP payments at age 52, you would have to continue until you were 591/2, or for seven-and-a-half years. How- ever, if you were to die before the 60 payments were completed, the agreement dies with you. Your beneficiary wouldn’t be required to complete the SEPP program. The SEPP program is especially useful if you have rolled over your 401(k) plan from work and would like just to live off of that while your other accounts continue to grow. You can opt to have the SEPP just use the value of your rollover accounts, instead of your traditional IRA accounts.

Plus, don’t think that just because you are taking money out of your IRA, you must use it all. If you find that the monthly amount is too much income for you, and I have clients that have found that, you can always reinvest the money into a nonqualified (reg- ular) account, where it can grow. You just can’t receive more or less than what is specified by the SEPP calculation. But by divert- ing some of the unnecessary money into another account, you can help continue to grow your money so that if you need it later, it will be there.

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