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March Midterm Fed Rate vs February  


rpie74
Posts: 6
(@rpie74)
Trusted Member
Joined: 9 months ago

Hello,

 

My question relates to the timing of taking my first distribution.

In February the 120% mid-term rate was 2.10%. The March rate was just released and it's now 1.83%.

 

So my question is...

If I want to go off of the February rate, does that mean that I need to begin my first distribution before April 15th (assuming that's when the next rate is announced)?

If that's the case, can I use whatever amount I currently have in my IRA from April? Or do I need to use the amount from March since that's the mid term rate I want to use?

Thanks so much.  And I really appreciate this forum. It's been super helpful.

 

4 Replies
dlzallestaxes@msn.com
Posts: 61
(@dlzallestaxesmsn-com)
Illustrious Member
Joined: 1 year ago

There isn't any connection between the interest rate timing and the IRA balance that is used. The interest rate must be limited to the one in  effect for either of the 2 months preceding the month of your first distribution. The IRA balance that you can use is usually "any amount that was reasonable and documented" for any time usually within the 6 months preceding the month of the first distributions. For example, we usually use the highest month-end balance from 12/31 thru 6/30 for a July initial distribution. You are allowed to use the balance on any day within any of these months, but you would have to print out the portfolio as of that date for your documentation if you are ever audited, but that statement is never attached to your tax return.

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rpie74
Posts: 6
(@rpie74)
Trusted Member
Joined: 9 months ago

Thanks for your reply. I really appreciate it.

Can I just confirm one more thing?  Assuming that the new April mid-term rates are released on March 15th and I would like to use the February rates, would that mean that I would need to make a distribution before that date in order to "lock-in" the February 2.10% rate that I'm trying to target?

 

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dlzallestaxes@msn.com
Posts: 61
(@dlzallestaxesmsn-com)
Illustrious Member
Joined: 1 year ago

Probably you can make the distribution at any time in April, not necessarily before 4/15. Do you really expect the fed rates to jump up above the Feb rates ? By the way, if you plan to take distributions monthly, make sure to set the date no later than the 15th or 20th, just so you will have time to correct for any erroneous Dec distribution before 12/31. Trying to "time" the market (or interest rates) is almost never successful.

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rpie74
Posts: 6
(@rpie74)
Trusted Member
Joined: 9 months ago

Thanks again.  I don't know to be honest.   My calculations were based on the 2.10% February midterm rate.  And when I drop it down to 1.83%, the difference per year is almost $2000.  Probably not super significant, but I did have a target yearly income I wanted to hit and this drop in the rate no longer gets me to my target.  It's certainly possible that the April rate jumps back up above 2.1%.  But being that I planned around the 2.1%, I'm trying to figure out what I needed to do to qualify for the February rate.

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