How Can We Help?
< Back
You are here:
Print

2002-62 Calculation

L1: 2002-62 CalculationI am receiving discrepancies when investment companies are providing RMD calculations for my clients who are reducingunder 2002-62. I”ll use the following to illustrate:
Client (who will be turning age 55 during 2003) has an IRA valued at 300k on 12-31-02 and wishes to make a “one-time change” and reduce the 72t payments beginning in February of 2003. The January 2003 72t withdrawal has already been made.
My assumption would be: 300k divided by 29.6 years of life expectancy results in an annual amount of $10,135.14. Then, divide by twelve equals $844.59 per month. Therefore, the client shall receive $844.59 per month beginning in February of 2003 and continuing through December 2003. In addition, the payments will be recalculated next January based on the 12-31-03 amount. The monthly payments will then go up or down in January of 2004.
One particular investment company says the above example is wrong. Under their method: take 300k (12-31-02 balance) and subtract the January 2003 payment of $2000. Then, use the net 298k and divide by 29.6 years of life expectancy to get an annual figure of $10,067.57. Then, divide by the eleven monthly payments remaining this year to get a monthly figure of $915.23 starting with the February 72t payment and continuing through December 2003. In addition, the payments will be recalculated next January based on the 12-31-03 amount. The monthly payments will then go up or down in January of 2004.
Another company says take 300k (12-31-02 balance) and divide by 29.6 years of life expectancy to get an annual figure of $10,067.57. Then, subtract the January payment (which has already been taken) from the new annual figure ($10,067.57 minus $2,000 equals $8,067.57). Then, divide $8067 by eleven or twelve (depending on who you ask) to get a new monthly figure for the remainder of 2003. Then recalc for January of 2004.
Which method is correct?2003-02-07 21:26, By: Cobra, IP: [127.0.0.1]

L2: 2002-62 CalculationHello Cobra:
I respectfully suggest you see my post (about 3-4 down from yours) titled: My Opinion On Advice Vs. My Opinion dated 2/6/03. I didn”t check the detail math of your examples; however, I would suggest that there are potentially several different equally correct answers depending on detailed assumptions.
TheBadger
wjstecker@wispertel.net

2003-02-07 21:53, By: TheBadger, IP: [127.0.0.1]

L2: 2002-62 CalculationTheBadger,
I totally agee with your post. I DO use this board for general information, andto compare the information with other sources such as my firm”s CPA, a well respected tax attorney (Noel Ice), Ed Slott CPA, as well as the legal department at several large investment institutuions. I appreciate the feedback that I receive here. I also respectthe huge amount of time thatGordon, you and others put into this site.
I would like to know which method YOU would use in my example. I do realize it is your opinion and others may disagreee with you. I think that”s what makes a forumlike this so great!2003-02-07 22:27, By: Cobra, IP: [127.0.0.1]

L2: 2002-62 CalculationHello Cobra:

In my opinion, you client faces several choices/assumptions:

(1) to switch to the RMD method as of 1/1/03 or switch to the RMD method as of some later date (let=s assume 2/1/03) for illustrative purposes.

(2) to use the single life table resulting in a life expectancy of 29.6 years or to use the uniform or J&S tables; again I will assume the single life figure of 29.6.

(3) 12/31/02 account balance is $300,000.00. Let=s further assume that the 1/31/03 account balance is $298,000.00 (to relflect the 1/03 distribution of $2,000 with zero gains or losses in 1/03).

(4) $2,000 was withdrawn during January, 2003 and does represent the exact & correct monthly distribution amount under the client=s old method.

Given the above, your client faces two fundamental alternatives:

(1) Switch to the RMD method effective 1/1/03. Therefore the calendar 2003 RMD distribution becomes $10,135.14 ($300,000 / 29.6). He has already taken $2,000; therefore, the remainder of $8,135.14 must be distributed sometime between now and 12/31/03; the frequency of which is irrelevant. If convenient, your client could take $739.56 per month for the remaining 11 months of 2003.

(2) Switch to the RMD method effective 2/1/03 requiring a bifurcation of 2003 into two separate periods. Therefore the total notional 2003 RMD distribution becomes $10,067.57 ($298,000 / 29.6). However, 1/12th of 2003 has already been distributed under the old method, and now 11/12ths needs to be distributed under the RMD method; therefore, $9,228.60 needs to be distributed sometime between now and 12/31/03. Again, if convenient, $838.96 per month works.

The key to these two alternatives is that you need to use different opening balances depending on your date of method conversion. Additionally, both alternatives arrive a certain & specific annual distribution amount which is inviolate. Based upon my opinions above, I think all three alternatives you expressed (in paras 3 – 5 of your post) are close but incorrect.

TheBadger
wjstecker@wispertel.net
2003-02-08 08:27, By: TheBadger, IP: [127.0.0.1]

Table of Contents