Skip to content

fix: Prioritize 72(t) SEPP and RMD as mandatory withdrawals, reinvest… #5

New issue

Have a question about this project? Sign up for a free GitHub account to open an issue and contact its maintainers and the community.

Sign up for GitHub

By clicking “Sign up for GitHub”, you agree to our terms of service and privacy statement. We’ll occasionally send you account related emails.

Already on GitHub? Sign in to your account

Merged
meva merged 1 commit into from
Jan 23, 2026
Merged

fix: Prioritize 72(t) SEPP and RMD as mandatory withdrawals, reinvest… #5

Changes from all commits
Commits
Show all changes
1 commit
Select commit
File filter

Filter by extension

Filter by extension
Conversations
Failed to load comments.
Loading
Jump to
Jump to file
Failed to load files.
Loading
Diff view
Diff view
131 changes: 77 additions & 54 deletions src/services/calculationEngine.ts
View file
Open in desktop
Original file line number Diff line number Diff line change
Expand Up @@ -84,33 +84,35 @@ export const getWithdrawalOrder = (
// Prioritizes penalty-free access
// ========================================
if (age < 59.5) {
// 1. Taxable Brokerage (Capital Gains) - Always accessible
// 1. 72(t) SEPP - Substantially Equal Periodic Payments (Mandatory if active)
// This must happen first to fill the gap before discretionary sources
if (age < 55) {
const maxSEPP = calculateSEPPPayment(assets.traditionalIRA, age);
if (maxSEPP > 0) {
order.push({
source: 'Traditional IRA (72t/SEPP)',
limit: maxSEPP,
taxType: 'Ordinary',
penalty: false,
isSEPP: true
});
}
}

// 2. Taxable Brokerage (Capital Gains) - Always accessible
order.push({ source: 'Taxable Brokerage', limit: assets.brokerage, taxType: 'CapitalGains', penalty: false });

// 2. Roth Contributions (Basis) - Always tax/penalty free
// 3. Roth Contributions (Basis) - Always tax/penalty free
order.push({ source: 'Roth IRA (Basis)', limit: rothBasisAvailable, taxType: 'None', penalty: false });

// 3. Rule of 55 OR 72(t) SEPP - Penalty-free Traditional access
// 4. Rule of 55 - If age >= 55 and separated from employer
if (age >= 55) {
// Rule of 55: If age >= 55 and separated from employer
order.push({
source: 'Traditional IRA (Rule of 55)',
limit: assets.traditionalIRA,
taxType: 'Ordinary',
penalty: false
});
} else {
// 72(t) SEPP - Substantially Equal Periodic Payments
const maxSEPP = calculateSEPPPayment(assets.traditionalIRA, age);
if (maxSEPP > 0) {
order.push({
source: 'Traditional IRA (72t/SEPP)',
limit: maxSEPP,
taxType: 'Ordinary',
penalty: false,
isSEPP: true
});
}
}

// 4. Traditional IRA (Penalty) - Last resort
Expand Down Expand Up @@ -263,7 +265,8 @@ export const calculateStrategy = (profile: UserProfile): StrategyResult => {
let gap = targetNet - grossCash;

for (const step of priorityOrder) {
if (gap <= 0.5) break; // Gap filled
// If gap is filled AND it's not a SEPP requirement, we can stop
if (gap <= 0.5 && !step.isSEPP) continue;

// Determine available amount in this bucket based on currentAssets state
let availableInBucket = 0;
Expand All @@ -274,12 +277,9 @@ export const calculateStrategy = (profile: UserProfile): StrategyResult => {

// Apply step limit (e.g. SEPP limit)
let limit = step.limit;
// Special Handling: If we already used some TradIRA for RMD, reduce available?
// RMD comes out of TradIRA, so currentAssets.traditionalIRA is already reduced.
// However, SEPP limit is calculated on distinct balance.
// For simplicity, we just take min(available, limit).

const pull = Math.min(gap, availableInBucket, limit);
// SEPP REQUIREMENT: Must take the FULL amount even if not needed to avoid "busting" the calculation
const pull = step.isSEPP ? Math.min(availableInBucket, limit) : Math.min(Math.max(0, gap), availableInBucket, limit);

if (pull > 0) {
// Adjust Assets
Expand All @@ -300,7 +300,7 @@ export const calculateStrategy = (profile: UserProfile): StrategyResult => {
taxableAmount: taxableAmt,
taxType: step.taxType,
description: step.penalty ? 'WARN: Early withdrawal penalty applies.' :
step.isSEPP ? '72(t) SEPP withdrawal.' : 'Standard withdrawal.',
step.isSEPP ? '72(t) SEPP withdrawal (Fixed requirement).' : 'Standard withdrawal.',
});

// Add to Cash / Tax / Penalty
Expand Down Expand Up @@ -439,63 +439,86 @@ export const calculateLongevity = (profile: UserProfile, strategy: StrategyResul
let penaltyAmount = 0;

if (age < 59.5) {
// FIRE Phase: Brokerage first (penalty-free access priority)
fromBrokerage = Math.min(currentBrokerage, remainingDraw);
currentBrokerage -= fromBrokerage;
remainingDraw -= fromBrokerage;
// FIRE Phase Priority: SEPP first (mandatory) -> Brokerage -> Roth -> HSA

// 72(t) SEPP: Use FIXED payment amount calculated at retirement start
// SEPP is available only during the required period (5 years OR until 59.5)
const isSeppActive = age >= seppStartAge && age < seppEndAge;
const seppLimit = isSeppActive ? fixedSeppPayment : 0;

// Use SEPP first (penalty-free, but capped at fixed annual amount)
fromTradSEPP = Math.min(seppLimit, currentTrad, remainingDraw);
// SEPP REQUIREMENT: Must take the FULL amount even if not needed to avoid "busting" the calculation
// We withdraw the full seppLimit (capped by actual account balance)
fromTradSEPP = Math.min(seppLimit, currentTrad);
currentTrad -= fromTradSEPP;
remainingDraw -= fromTradSEPP;

// Brokerage next (penalty-free access)
if (remainingDraw > 0) {
fromBrokerage = Math.min(currentBrokerage, remainingDraw);
currentBrokerage -= fromBrokerage;
remainingDraw -= fromBrokerage;
}

// Additional Traditional IRA beyond SEPP incurs 10% early withdrawal penalty
fromTradPenalty = Math.min(currentTrad, remainingDraw);
currentTrad -= fromTradPenalty;
remainingDraw -= fromTradPenalty;
penaltyAmount = fromTradPenalty * 0.10;
if (remainingDraw > 0) {
fromTradPenalty = Math.min(currentTrad, remainingDraw);
currentTrad -= fromTradPenalty;
remainingDraw -= fromTradPenalty;
penaltyAmount = fromTradPenalty * 0.10;
}

// Total Traditional = SEPP + Penalty
fromTrad = fromTradSEPP + fromTradPenalty;

fromRoth = Math.min(currentRoth, remainingDraw);
currentRoth -= fromRoth;
remainingDraw -= fromRoth;
if (remainingDraw > 0) {
fromRoth = Math.min(currentRoth, remainingDraw);
currentRoth -= fromRoth;
remainingDraw -= fromRoth;
}

if (remainingDraw > 0) {
fromHSA = Math.min(currentHSA, remainingDraw);
currentHSA -= fromHSA;
remainingDraw -= fromHSA;
}

fromHSA = Math.min(currentHSA, remainingDraw);
currentHSA -= fromHSA;
remainingDraw -= fromHSA;
// If we over-withdrew (due to mandatory SEPP), reinvest the excess to Brokerage
if (remainingDraw < 0) {
currentBrokerage += Math.abs(remainingDraw);
remainingDraw = 0;
}
} else {
// Standard Phase: Traditional IRA first (fill low tax brackets)
// For age 73+: Must withdraw at least the RMD amount
const minTradWithdrawal = Math.max(rmdAmount, 0);
fromTrad = Math.max(minTradWithdrawal, Math.min(currentTrad, remainingDraw));
fromTrad = Math.max(minTradWithdrawal, Math.min(currentTrad, Math.max(0, remainingDraw)));
fromTrad = Math.min(fromTrad, currentTrad); // Can't withdraw more than available
currentTrad -= fromTrad;
remainingDraw -= fromTrad;

// If RMD exceeds spending needs, reinvest excess to brokerage
if (fromTrad > requiredDraw && rmdAmount > 0) {
const excessRMD = fromTrad - requiredDraw;
currentBrokerage += excessRMD; // Reinvest excess RMD
if (remainingDraw > 0) {
fromBrokerage = Math.min(currentBrokerage, remainingDraw);
currentBrokerage -= fromBrokerage;
remainingDraw -= fromBrokerage;
}

fromBrokerage = Math.min(currentBrokerage, Math.max(0, remainingDraw));
currentBrokerage -= fromBrokerage;
remainingDraw = Math.max(0, remainingDraw - fromBrokerage);
if (remainingDraw > 0) {
fromRoth = Math.min(currentRoth, remainingDraw);
currentRoth -= fromRoth;
remainingDraw -= fromRoth;
}

fromRoth = Math.min(currentRoth, remainingDraw);
currentRoth -= fromRoth;
remainingDraw -= fromRoth;
if (remainingDraw > 0) {
fromHSA = Math.min(currentHSA, remainingDraw);
currentHSA -= fromHSA;
remainingDraw -= fromHSA;
}

fromHSA = Math.min(currentHSA, remainingDraw);
currentHSA -= fromHSA;
remainingDraw -= fromHSA;
// If we over-withdrew (due to mandatory RMD), reinvest the excess to Brokerage
if (remainingDraw < 0) {
currentBrokerage += Math.abs(remainingDraw);
remainingDraw = 0;
}
}

const totalAssets = currentBrokerage + currentTrad + currentRoth + currentHSA;
Expand All @@ -508,7 +531,7 @@ export const calculateLongevity = (profile: UserProfile, strategy: StrategyResul
traditionalIRA: currentTrad,
rothIRA: currentRoth,
hsa: currentHSA,
withdrawal: requiredDraw,
withdrawal: fromBrokerage + fromTrad + fromRoth + fromHSA,
// Breakdown of withdrawals
withdrawalBrokerage: fromBrokerage,
withdrawalTrad: fromTrad,
Expand Down