72t change in method
L1: 72t change in methodI have a 72t that started in 2001 and was taking 42,000 per year (3,500/ month). The market has had many corrections and wish to change to the minimum distribution method starting in April. Age is 59 on 1/20/1949 and would like the monthly amount to be changed now until reaching 59 1/2, in July,and then choose the amount to withdraw asithas been 5 years and 59 1/2.
Is itcorrect that the 12/31/07 value is used to calculate the minimum distribution amount? And if so , considering withdraws of $3,500 per month taken in in Jan , Feb and March does that effect the amountneeded to be taken for April, May and June? The amount under the minimum method is approx. $ 10,000 per year. Does that meana withdraw of$2,499.99 (10,000 divided by 12 months x 3 months= 2,499.99) needs to be taken?
Thanks in advance for your help.
Brian2008-03-19 16:40, By: BK, IP: [220.127.116.11]
L2: 72t change in methodBK,
My simplistic view of this is that there are only 3 months left in your SEPP (starting in April) where you will “save” a bit by taking out less. The complications of changing to RMD in “mid year” (in my mind) are not worth doing it when you are so close to being finished.I also think most people who do that the one time changeto RMD make that change at the beginning of a calendar year. If you continue “as is”, and this causes you to take a little extra out in next three months, look at itas a little less that you need to take out after you turn 59 1/2 this year. I”d leave as is, and not take any different amount until beginning of August, when you are clearly past 7/20/08 (age 59 1/2– if you were born 1/20/49). JMHO. Ken.2008-03-20 05:23, By: Ken, IP: [18.104.22.168]
L2: 72t change in methodI agree with Ken … leave everything alone until you have completed your SEPP Plan requirements and make changes then.
When you change to the RMD method, you calculate an annual withdrawal amount, just like the other methods. In your example, if your RMD shows $10,000 for 2008 and you have already taken out $10,500 in the first 3-months, then you will have to roll back $500 within 60-days of the last withdrawal to be compliant. And then your distributions will be over for 2008 until this summer when your plan will be complete. I suspect you will continue to need some amount of distributions before August.
Leave it alone. Take your normal distributions and bank some to use after you reduce your distributions in August.
Jim2008-03-20 05:42, By: Jim, IP: [22.214.171.124]
L2: 72t change in methodJim and Ken,
Thanks for the response.
I do have other funds to use for income,if so I could put the $500 back as a roll back , and I just received a payment this month so I would be within the 60 days.
If I decide to do that,how does one keep a record that I changed my method? Is there an IRS form?
Obviously, the brokerage firm my account is with would also have to allow the roll back.
My reason for doing this is because of the market corrections we have just had and will only need to take about $1,400 per month after July 2008.Considering this roll back and change as an option it would stop approximately $14,000 coming out of my account now over the next 4 months and may help in the long run, should the market recover .
2008-03-20 07:28, By: BK, IP: [126.96.36.199]
L2: 72t change in methodIf you still want to do the one time change, make it effective 1/1 on a CY basis and roll back the difference within 60 days. Be sure you qualify for a rollover under the 12 month rule, ie you have not done another rollover involving the IRA account within the prior 12 months. There is no reason your custodian would not accept the roll back, although they may change your 1099R coding if you do anything out of the ordinary.
There are NO separate IRS forms to file. Just carefully document your RMD calculation and have it double checked prior to proceeding. Use the 12/31/07 account balance. If you are filing a 5329 form anyway to claim the exception, add an explanatory statement that you opted for the one time change to the RMD method effective 1/1/08.
As the others have stated, this is a risk-reward maneuver that should not be attempted unless you feel the benefits are compelling.2008-03-20 23:00, By: Alan S., IP: [188.8.131.52]