If using the maximun allowed of 120% of FMTR yields a permissible 72t distribution amount of $2,000/ month, can you pick any amount as long as it doesn’t exceed $2,000? Or would you have to use exactly the amount generated by either 80%, 100%, or 120% of
FMTR? My understanding is that once you calculate an amount using 120%, you can use any amount as long as it’s not over the $2,000 from 120% FMTR-want to be sure I’m correct. Thanks
2011-08-05 20:03, By: JT, IP: [188.8.131.52]
Sorry, but you are wrong
You can use any interest rate that is not more than the 120% rate for either of the two months before the date of the first distribution. Whatever interest rate that you use for the initial calculation is then locked and the
annual distribution that is calculated is not a maximum amount, it is a very exact amount.
Any variance should result is the annual distribution being within $1 of the calculated annual distribution.
The $1 is because of possible rounding that results from dividing the annual amount by 12 andthen rounding to the nearest cent.
Your initial question leads me to believe that you may want to spend a little more time reading the information this site provides and/or the purchase and read book by Bill Stecker. 72t mistakes can be very costly.
2011-08-05 20:17, By: Gfw, IP: [184.108.40.206]
If you want take out an amount less than 2,000, there are options to do that:
1) Partition your IRA into two accounts, reducing the balance in the IRA account you will use for your plan BEFORE you start your plan to an amount that generates the amount you want. The other IRA is kept out of the plan and
can be used for temporary emergency needs.
2) You can also use a lower than max interest rate to start with, but are then locked into that lower amount just like you were locked into the higher amount. Option 1 is preferred over this option because of the benefits of
the partitioned IRA account
3) Finally, you can change your calculation to the MD method one time in your plan and must then use that method with a new MD calculation each year. Assuming no earnings changes in the account, this may reduce your distribution
But you also need to factor in future increases in your expenses, particularly if you have a plan that must run longer than 5 years. That means that you need a padding over the amount you need for the present year.
2011-08-05 23:14, By: Alan S., IP: [220.127.116.11]
Good morning Gordon. I’m working on the TSP comments for the FAQ and will send it to you when completed. I Currently have several other “irons in the fire.”
Let’s review one sentence from your post in this string …
“The $1 is because of possible rounding that results from dividing the annual amount by 12 andthen rounding to the nearest cent.”
Instead of “… rounding to the nearest cent.” I think you meant
“… rounding to the nearest dollar.” I further believe that coins denominated in “half cents” went out long before either you or I were born.
Have a nice day
2011-08-09 15:15, By: Jim F, IP: [18.104.22.168]
Actually I really did mean the nearest one cent (penny if you prefer). Example…
Annual Distribution = $10,000.
Monthly = $10,000. divided by 12 = $833.33333333
$833.33333 rounded to nearest one cent = $833.33
$833.33 time 12 = $9,999.96 = 4 cent variance.
Other examples could produce a larger variance but should never be greater than $1.
2011-08-09 15:24, By: Gfw, IP: [22.214.171.124]
OK … I’ll give you that one.
But if someone wanted to take annual distributions and didn’t want to receive odd pennies, they could round to the nearest dollar. Agreed?
2011-08-09 15:31, By: Jim F, IP: [126.96.36.199]
Very likely could, but I wouldn’t – transferring funds to an account or cashing a check with odd pennies isn’t that difficult and if an audit did occur, with proper documentation it is one more item that can’t be questioned/challenged.
2011-08-09 15:41, By: Gfw, IP: [188.8.131.52]