72(t)(q) RMD method

L1: 72(t)(q) RMD method
Hi guys,
If someone elects the RMD method for 72(t)(q) SEPP, can they take out less than the RMD?This question would apply to bo the intial election ora change fromone of the other methods to the RMD method. I know for the other methods this is allowable.
I am having a hard time finding this information in any of the regs. 2002-62 or 1.401(a).
My feeling is that they have to take the RMD no more or no less. Any insight, or where to find this in the regs would be most helpful.
Thanks,
Maverick
2011-11-02 15:43, By: Macerick, IP: [63.66.47.211]

L2: 72(t)(q) RMD method
For all three methods the amount to be distributed annually is the calculated annual amount –
no more and no less.
In the first and last year, there may be partial years, but the amounts are still merely a pro-ratedamount based on the annual withdrawal.
2011-11-02 15:54, By: Gfw, IP: [205.178.73.77]

L3: 72(t)(q) RMD method
Thank you GFW,
From my understanding there is leeway in that intial calculation. For instance I can use “any interest rate”less than 120% as published. So if I use 0% based off of $100,000 for a 50 year old male. I come up with ~$2,924. Can I set up a SEEP plan for
a dollar amount less than this?
Thanks,
Maverick
2011-11-02 18:47, By: Maverick, IP: [63.66.47.211]

L4: 72(t)(q) RMD method
Maverick:
While you are correct that you can select an interest rate less than the 120% FMR, this is not the smartest way to run a railroad … I mean, SEPP Plan. You are not taking advantage ofa more flexible method to set it up. It seems that your one IRA account
is quite large and using the most favorable rate to calculate your distribution will generate more money than you need.
Start by determining how much money you will need to withdraw annually from your SEPP Plan. Nextuse the “Reverse Calculator” on this site to determine how much money you will need in one IRA to generate that needed amount. Using the “trustee-to-trustee”
method, split your one IRA into two SEPARATE IRA accounts (that’s two separate account numbers). One of these IRA’s will be for your SEPP Plan which you calculate using the maximum, 120% FMR and the Amortization calculation method.
The other IRA account will be your “emergency plan” to make “penalty withdrawals” for unforseen emergencies which we will guarantee will arrive during your SEPP Plan years.
I hope this helps.
Jim F
2011-11-02 19:07, By: Jim F, IP: [70.167.81.119]

L5: 72(t)(q) RMD method
Hi GFW,
This gets a little more complicated. Client has an annuity with an income benefit on it.They can not violate that maximum income amount from the annuity. So they are considering working a 72(t)(q) into the IRA. We need to make sure thatwe are meeting
both the guidleines for the annuity without running afoul of the IRS.
I come back to my same question, can you take any amount, as long as it is less than the maximum allowed in a 72(t)(q) program.
I understand there are some life expectancy factors built into the calculations. For example if someone had a $100,000 IRA could they take $2,000 as the current rules are written and still qualify for the SEPP exception?
FYI I did not set up this plan
Thanks,
Maverick
2011-11-02 19:14, By: Maverick, IP: [63.66.47.211]

L6: 72(t)(q) RMD method
>>For example if someone had a $100,000 IRA could they take $2,000 as the

>>current rules are written and still qualify for the SEPP exception?
Simple answer… NO.
From my first response…Forall three methodsthe amount to be distributed annually is the calculated annual amount -no more and no less.Additionally no assets may be added to the SEPP
and no additional withdrawals can be taken from the SEPP.
Fyi… 72(q) governs non-qualified annuities and has nothing to do with a SEPP established as an IRA. An annuity used in an IRA is a qualified annuity and is covered by 72(t).
2011-11-02 19:28, By: Gfw, IP: [205.178.73.77]

L6: 72(t)(q) RMD method
Check to see ifthe insurance companyis willing to set up a second contract to serve as the “emergency account” and allow the necessary transfer to set up a proper SEPP Plan. A Variable Annuity company may be more willing to do this than a Fixed Annuity
company.
If you can make the transfers and it is a VA contract, try to use the company’s “C share” contract which has no surrender charge associated with it.
Jim F
2011-11-02 19:40, By: Jim F, IP: [70.167.81.119]

L7: 72(t)(q) RMD method
Jim… While it hasn’t been directly stated, I think this is an existing SEPP plan. If yes, it would be too late to split the account.
2011-11-02 20:01, By: Gfw, IP: [205.178.73.77]

L8: 72(t)(q) RMD method
GFW … If this is an existing plan then you are correct. However, from his statement …
“This gets a little more complicated. Client has an annuity with an income benefit on it.They can not violate that maximum income amount from the annuity. So they are considering working a 72(t)(q) into the IRA.”
I got the impression no SEPP Plan exists and they are in the process of setting one up.
Maverick … please state for the record whether the currentannuity IRA does or does not have a 72(t) plan established.
Jim F
2011-11-02 20:16, By: Jim F, IP: [70.167.81.119]

L6: 72(t)(q) RMD method
Maverick:
I have another thought about your statement …
“This gets a little more complicated. Client has an annuity with an income benefit on it.They can not violate that maximum income amount from the annuity. So they are considering working a 72(t)(q) into the IRA.”
I work a lot with VA’s with income benefit riders funding IRA’s. You need to look for a couple of terms; “RMD friendly” and “72(t) friendly.” I have found companies will allow you to exceed the income benefit rider limits to satisfy RMD’s since these are
statutorially required distributions. However, early distribution penalty relief provided by 72(t) is “optional” to the IRA owner and not “required” by statute. In other words, you must take RMD’s but you don’t have to take early distributions.
Because of this difference, annuity companies generally don’t allow you to exceed the income limit restrictions of the rider just to satisfy the requirements of an “optional” exercise of your rights under 72(t). Furthermore, I have found that using the
120% FMR rate and the Amortization method will cause you to exceed the annuity contract’s income rider limits. In this case you will haveno choice but to use a rate
less than the 120% FMR to comply with both the income rider limits and to have a compliant 72(t) plan.
Now,pleaseclarify if the existing annuity IRA contract does or does not currently have a 72(t) plan set up?
Jim F
2011-11-02 20:56, By: Jim F, IP: [70.167.81.119]

L7: 72(t)(q) RMD method
Hi Jim,

Thank you for your answer. The current IRA annuity does not have the SEPP option in it. But the option is on the table. To answer your question even using the a 0% AFR rate my 72(t) amount is higher than the income benefit. Can I take out just the amount
allowed as per the “income benefit”, and still be compliant with the 72(t) rules?
Thanks,
Maverick
2011-11-03 13:05, By: Maverick, IP: [63.66.47.211]

L8: 72(t)(q) RMD method
You are making this a lot more complicated then it needs to be simply because you aren’t giving sufficient details.
If you are you stating that the IRA annuity has nothing to do with the current SEPP plan and that you are intending on setting up the IRA annuity as a new SEPP, then refer to Jim’s previous postabout splitting
the IRA annuity into multiple annuity contracts.
If the annuity is part of an existing SEPP plan, the answer is still NO! You must take out the exact amount – no more and no less.
No matter how many times that you ask, the answer will be no. A quote from A. Einstein…Insanity: doing the same thing over and over again and expecting different results.
2011-11-03 13:22, By: Gfw, IP: [205.178.73.77]

L8: 72(t)(q) RMD method
Maverick:
Things just don’t add up with the info you have given, so please answer the following questions:
1. Are you dealing with a fixed or variable annuity?
2. What is the contract issue date?
3. What is the maximum surrender charge andwhen will the surrender period end (date)?
4. What are the terms of the income distribution rider? How is the annual distribution amount calculated? Please show your computations.
5. What is the value of the contracttoday or on the last statement date, whichever you have?
Using your “hypo” of $100k, age 50, I get the following distribution amounts:
0.0%1.95%
Amortization method: $2,151$4,034
Anuitization method: $2,125$4,020
MD method: (% doesn’t matter) $2,924
Most “income riders” I’m familiar with allow annual distributions of between 4% and 8% of contract value. So when you state that 0% yields an amount greater than allowed by the rider, it just doesn’t make sense when you look at the above table.
Please answer my questions and I think we can get to the bottom of this and maybe help you solve your problem.
Jim F
2011-11-03 15:23, By: Jim F, IP: [70.167.81.119]

L9: 72(t)(q) RMD method
Also answer the question asked several times – is this an existing SEPP?
If we don’t get some answers in the next post fromMacerick, I’ll merely close off the post – it is really going nowhere
2011-11-03 16:19, By: Gfw, IP: [205.178.73.77]

L10: 72(t)(q) RMD method
Gordon:
I think Maverick did answer the question of whether the annuity does or does not have an active SEPP Plan operating at this time with thissentence from one of his recent posts …
“The current IRA annuity does not have the SEPP option in it.”
Now if he fully answers all of my questions I think we can make some headway. Otherwise I agree with you to move on.
Now it’s time for EA study.
Jim F
2011-11-03 18:48, By: Jim F, IP: [70.167.81.119]

L7: 72(t)(q) RMD method
Hi Jim,I forgot to mention it is not 72(t) friendly.
Maverick
2011-11-03 13:08, By: Maverick, IP: [63.66.47.211]

L4: 72(t)(q) RMD method
An interest rate lower than zero and you may be looking for future problems. With that said, there is no interest rate used in the Minimum distribution calculation. The calculation is based only on attained age and assets so reducing to zero should have
no impact. Also remember that using the MD method that a re-calculation must occur every year and the annual distribution will probably change evey year.
If this is an exiting plan, you are probably already locked in.
If this is a new plan, use the reverse calculator to get the amount need to produce the desired annual distribution and move the excess to a new IRA account.
2011-11-02 19:09, By: Gfw, IP: [205.178.73.77]

L5: 72(t)(q) RMD method
Instead of wasting a lot of time, please just give us the facts, all of the facts ( as Joe Friday used to say, if you are old enough to remember). The amounts in the SEPP, annuity as part of the SEPP, date of birth, dates and amounts of any 2011 payments,
date of first distribution, etc.
2011-11-02 19:25, By: dlzallestaxes, IP: [96.227.217.194]