Self directed IRA and 72T

L1: Self directed IRA and 72THi,

I have a client who is 52 and wishes to take 72T distributions starting the first of next year based on a self directed IRA that is invested in secondary mortgages which is returning a net 9% to 11%. He wants to invest between $350K to$400K into this and then has and additional amount of approx. $550 to $600K of assets in a traditional IRA.

Now, my question is tht he would like to receive $4k a month before taxes based on just his self directed IRA, but I have not been able to find any info on 72T and a self directed IRA or how to get him his desired $4K monthly amount based on these figures.

Any info would be greatly appreciated.

Thanks, Mike2003-08-19 20:31, By: Tradewinds, IP: [127.0.0.1]

L2: Self directed IRA and 72TBased on current interest rates and only allocating the 400,000 amount the desired income level isn’t possible based on 2002-62. You could allocate additional IRA funds, or seek a PLR allowing the use of a rate in excess of the maximum 2002-62 rate.2003-08-20 05:01, By: Gfw, IP: [127.0.0.1]

L2: Self directed IRA and 72TGordon,
Does it matter if it is a self directed IRA and is invested in mortgages when it comes to doing a 72T?

Thanks, Mike2003-08-20 08:56, By: Tradewinds, IP: [127.0.0.1]

L2: Self directed IRA and 72THello Tradewinds:
The interet rate assumption used in the amortization & annuity methods is just that; an assumption, intentionally set fairly conservatively for formula purposes. This assumption bears no relationship to the fact that an IRA maybe self-directed or how the contents of the IRA are invested.
Now, a 52 year-old with $400k who wants $48k per year under a SEPP plan would need to use the amortization method with an interest rate assumption of 11.7%. I gotta tell you, this just isn’t gonna happen; not with 120% of the mid-term rate @ 3.25%. Now, let’s assume your client adds $350k to bring the IRA in question up to $750k. Then, the (implied) interest rate assumptiondrops to 5.2%.5.2% is neither expressly permitted nor isit disallowed; kinda like no-mans land; nonetheless, IMHO I would see 11.7% is unreasonable whereas I would see 5.2% as rational and defensible.
TheBadger
wjstecker@wispertel.net

2003-08-20 09:15, By: TheBadger, IP: [127.0.0.1]

L2: Self directed IRA and 72TBadger,I appreciate your thorough and prompt reply. That is basically what I had thought also (adding another $400K or-) but the client does not want to put more than the $400K into mortgages, which I do not blame him.
What I am thinking is that we can make the mortgage self directed IRA into 72T distributions and then convert another portion of his other IRA (approximate amount of $400K) into 72T distributions as well. This would leave an approximate amount of $250K in a traditional IRA that would not be touched and growing tax deferred.
Do you agree with this?

Thanks, Mike2003-08-20 16:53, By: Tradewinds, IP: [127.0.0.1]

L2: Self directed IRA and 72TNot badger, but… the investment of the underlying IRA is not really part of the over all plan.
The amount allocated to the plan should be divided into one or more IRA accounts and the sum of the accounts used to determine the actual payment. It makes no difference from which account or combination of accounts the distribution actually occurs. If there is more than one account, then the accounts utilized (like the other assumptions) should be reduced to writing.
Develop the plan and the make sure that the plan is followed.2003-08-20 17:00, By: Gfw, IP: [127.0.0.1]

L2: Self directed IRA and 72TWhat I am thinking is that we can make the mortgage self directed IRA into 72T distributions and then convert another portion of his other IRA (approximate amount of $400K) into 72T distributions as well. This would leave an approximate amount of $250K in a traditional IRA that would not be touched and growing tax deferred.
Sounds like a plan. Actually, potentially two plans. Assume your client ends up with 3 IRAs; 400k, 400k and 250k — how they are invested is irrelevent. He further wants to start SEPPs; he can do so in two different ways:
(1) Adopt one SEPP plan encompassing both 400K IRAs & paying out $48k per year. The $48k can come out of IRA 1 or IRA 2 or both in any relationship.
(2) Adopy two SEPP plans, one each for IRA 1 & IRA 2; each plan paying out $24k per year. In this later case the funds must come out of each respective IRA. The only upside of this approach is to doubly preserve the right to convert to the RMD method, twice, once for each of the separate IRAs.
TheBadger
wjstecker@wispertel.net

2003-08-20 17:27, By: TheBadger, IP: [127.0.0.1]

L2: Self directed IRA and 72THi,

Just to clarify the:
Even though I have 2 IRA’s allocated ($400K in mortgages and $400K in mutual funds) for the 72T distribution of approx. $4k a month that I can only take withdrawls from the self directed IRA that is in the mortgages since it is currently returning a net of 9% to 11% and then leave the IRA of $400K in mutual funds for future 72T distributions?
Thanks, Mike2003-08-20 19:00, By: Tradewinds, IP: [127.0.0.1]

L2: Self directed IRA and 72TEven though I have 2 IRA”s allocated ($400K in mortgages and $400K in mutual funds) for the 72T distribution of approx. $4k a month that I can only take withdrawls from the self directed IRA that is in the mortgages since it is currently returning a net of 9% to 11% and then leave the IRA of $400K in mutual funds for future 72T distributions?
With two IRAs and ONE SEPP plan, you have the option to take monies from IRA 1 or IRA 2 in order to satisfy the $48k per year. Further, if $400k is in mortgages yielding 10% that provides $40k. The $40k plus presumably some return of capital could provide 100% or more of the $48k leaving all of IRA 2 untouched; at least until such time as IRA 1 starts to fall short.
TheBadger
wjstecker@wispertel.net
2003-08-20 19:17, By: TheBadger, IP: [127.0.0.1]