72t calculation

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L1: 72t calculationPotential client has a 72t already in place with another advisor. Advisor told client he doesn”t have any documentation on file (either lying or a terriable advisor). The client only has an e-mail from a lawyer that reads:
(Yes, Jim this is the client you told me to leave a lone a while back but for some reason she won”t leave. So if she won”t leave then I have to try and help her to the best that I can.)
05/07/2003
Dear xxxxxx,
As you requested this email is to confirm that based on her account balance of $280,141, her age 52, and the calculation rules of Revenue Ruling 2002-62, the highest level monthly amount she could start to take without penalty tax is $1,507…,assuming generally that she continues to receive this level amount until she reaches 59 1/2. Please feel free to share this email with her or her advisors.
Regards,
xxx xxxx, JD
My question is based on the above amounts the interest rate that they are using seems to be about 6.46%.(1507 *12= 18,084… 18,084 / 280,141=6.46)
But looking back at the previous AFR”s in 2003 the highest rate they could have used is 3.89%(3/1/03) Am I missing something?
I have the year end statements of 2003,2004,and 2005 showing when the first distrbution was made from each fund and I have the 1099-R forms for 2005 with code 2. The actual distributions seem to be in order but im afraid the $ amount of the distrubions is wrong.
Using 3.89% the highest amount I am figuring that could be received is $15,605.87 with amorit. method
Any insight would be greatly appreciated.
Nick

2006-05-23 13:30, By: Nick, IP: [205.135.136.10]

L2: 72t calculationHello Nick:
I potentially see several errors; however, I think theirs is the more serious. Based on age 52; therefore LE = 32.3 and using 5.20% I get a monthly distribution of $1507; e.g. @PMT(280141,.052,32.3)/12. So maybe they were using 5.20%.
All that being said, I did a quick check on the AFRs back in the Spring of 2003 and they are all under 4.0%; theefore, I can only conclude that some number is wrong. If all the dates and numbers are correct, then this potential client has a bad plan; better to bust now than later.
TheBadger
wjstecker@wispertel.net
2006-05-23 17:06, By: TheBadger, IP: [66.109.211.254]

L2: 72t calculationThe AFRs for 2003.

12/1/2003
4.26

11/1/2003
3.99

10/1/2003
4.39

9/1/2003
4.12

8/1/2003
3.25

7/1/2003
3.06

6/1/2003
3.68

5/1/2003
3.82

4/1/2003
3.56

3/1/2003
3.89

2/1/2003
3.93

1/1/2003
4.12
2006-05-23 17:29, By: Gfw, IP: [172.16.1.74]

L2: 72t calculationThanks Badger and Gfw.
The clients birthday is actually 9-7-1950 so the age they used in their calculation in 2003 is wrong because they used age 52 to calculate LE instead of age 53. Not to mention the fact that the interest rate is way above the 120% limit.
As I mentioned above the previous advisor says he doesn”t have any documentation on the setup of the 72t, which I don”t believe, but would the mutual fund company have any records or documentation on the setup of the 72t. Would itdo anygood to have the client call and allow me to ask them some questions about her account?
If this is a busted plan and she transfered the risk of the setup to “professionals” what steps do I need to take to provide the most assistance for this client.
Thanks for all the help so far.
Nick2006-05-24 07:43, By: Nick, IP: [205.135.136.10]

L2: 72t calculationHello Nick:
Well, some one did the math; I don”t know who & potentially you don”t either. In any event, whomever did the math either erred or they did not — it”s a Yes/No switch. Further, this entire process is document diriven; e.g. the documents govern & the plan is either busted or it is not.
I would not accept this client until this issue is resolved. It is ultimately the client”s responsibility to solve this issue. You may assist but I would not go much beyond that.
TheBadger
wjstecker@wispertel.net

2006-05-24 09:16, By: TheBadger, IP: [66.109.211.254]

L2: 72t calculationGood afternoon, Nick:
I said it before and I”ll say it again … under the current situation, don”t accept this prospect as a client.I understand your feelings of wanting to help someone who”s got a problem,but this is a loosing proposition for you until the problems are solved BEFORE you accept the account! If you take the account as it now is, then you will be accepting the problems along with the liabilities, and you do not want to do that.
Since 72(t) is a tax issue and I assume that you are neither a CPA, EA or tax attorney, then you need the assistance of a qualified person to work this problem. You might try a guy in Colorado named Bill Stecker, aka, TheBadger, who I know to be qualified. Bill will need all of the original documentation the prospect gave to the original advisor to solve the SEPP amounts. If the actual documents used in making the calculations can”t be found, then Bill could probably re-create fromaccount statementsand other information that can be produced by the prospect. Backing-in to answers using audit tools is what CPA”s do to earn the big bucks.
One last thought. The problem belongs to your prospect, not you. Don”t let yourself get overly anxious to get the account. But if you can help guide this prospect to the proper way to solve their problems, which may intail “busting” the current plan and setting up a new plan correctly, then you will have a good client.
Good luck.
Jim2006-05-24 13:19, By: Jim, IP: [70.184.1.35]