Recalculation Questions

L1: Recalculation QuestionsI have two questions.
First, in approved PLRs prior to 2002-62, what variables were allowed to change annually in the recalculations, i.e. account balance, rate and life expectancy, account balance only, account balance and life expectancy. I want to understand IRS precedents.
Second, if I get approved for SEPPs with recalculation and start taking them from my 401K, can I later roll my 401K over to an IRA and continue the SEPPs or am I locked in to my 401K? I checked with my 401K adminstrator and found that I can take withdrawals but once started they must stay constant or increase, they can never decrease. Given the potential, with recalculation, of a withdrawal in a current year being less than the prior year, I would be forced to roll the 401K into an IRA.
Thanks again for the prompt and thorough responses to my prior questions.

2003-08-12 17:56, By: Garry, IP: [127.0.0.1]

L2: Recalculation QuestionsFirst, in approved PLRs prior to 2002-62, what variables were allowed to change annually in the recalculations, i.e. account balance, rate and life expectancy, account balance only, account balance and life expectancy. I want to understand IRS precedents.
My recollection is that during the entire period of 1988 – 2002 there are about 12 PLRs that approved annual recalculation; unfortunately, they were all over the ballpark. As a result, the Service finally issued and Information Letter (which does set precedent) which basicly said that if you recalculate, you must recalculate all three variables: age/life expectancy; a new relative interest rate; a new account balance and you must do it on the same day; e.g. typically a month-end, each year.
Second, if I get approved for SEPPs with recalculation and start taking them from my 401K, can I later roll my 401K over to an IRA and continue the SEPPs
YES

or am I locked in to my 401K?
NO
I checked with my 401K adminstrator and found that I can take withdrawals but once started they must stay constant or increase, they can never decrease. Given the potential, with recalculation, of a withdrawal in a current year being less than the prior year, I would be forced to roll the 401K into an IRA.

This constant or increase only is puzzling — I would challenge it. Secondly, to the extent that your 401(k) plan might house advantageous investments; you could keep 50-60-70% of the assets in the 401(k) plan & house 50-40-30% in a rollover IRA and do a bit of a balancing act.
TheBadger
wjstecker@wispertel.net
2003-08-12 18:21, By: TheBadger, IP: [127.0.0.1]

L2: Recalculation QuestionsThanks, Badger!
I want to make sure I understand your last point. Are you saying that I could roll part of my 401K into an IRA, take my SEPP over the sum of the two accounts, and if recalculation called for a smaller withdrawal in the next year, reduce the withdrawal from the IRA while keeping the withdrawal from the 401K constant?
I just thought of another followup question. You said the IRS had set precedent that with recalculation you needed to use updated account balances, life expectancies and interest rate assumptions. Couldn’t you remove one of the variables by requesting in your PLR the use of a constant interest rate? If so, how high of a constant interest rate do you feel you could request without riskinghaving your PLR rejected? 6%? 8%?
Thanks again for your help and I will anxiously wait to hear the outcomeof your clients’ PLRs.
2003-08-27 07:11, By: Garry, IP: [127.0.0.1]

L2: Recalculation QuestionsI want to make sure I understand your last point. Are you saying that I could roll part of my 401K into an IRA, take my SEPP over the sum of the two accounts, and if recalculation called for a smaller withdrawal in the next year, reduce the withdrawal from the IRA while keeping the withdrawal from the 401K constant?
Yes, provided that your 401(k) plan administrator is willing to make a partial lump sum distribution to fund the IRA & then make some form of constant distribution going forward.
I just thought of another followup question. You said the IRS had set precedent that with recalculation you needed to use updated account balances, life expectancies and interest rate assumptions. Couldn”t you remove one of the variables by requesting in your PLR the use of a constant interest rate? If so, how high of a constant interest rate do you feel you could request without riskinghaving your PLR rejected? 6%? 8%?
Any taxpayer can request anything they want in a PLR; however, the real question is what will get approved.I doubt the Service would approve a PLR that provided for annual recalculation but only on the balance and the life expectancy while holding the interest rate constant. The reason I think this (I could be wrong) is that we already fought this battle back in 2000 – 2001 during which time the IRS issued what is called an “Information Letter” on this subject in which they explicitly approved annual recalculation & then very specifically told us to recalculate all three variables when doing so.
TheBadger
wjstecker@wispertel.net

2003-08-27 07:59, By: TheBadger, IP: [127.0.0.1]