72t IRA Running on Empty

L1: 72t IRA Running on EmptyIn May 1999, I quit working at age 44 _ to become the primary caregiver for our daughter. My spouse continued to work. When I left my previous employer I took a lump sum distribution and rolled that distribution into an IRA. With the help of my first investment advisory firm, I requested that the custodian of my IRA make periodic distributions, monthly and that the reason for this distribution would be Early Exception Distribution (2)۝ under IRS 72(t) rules.
The initial balance of my IRA from which these distributions would come was a little more tha $700,000.
My second investment advisor informed me that the first advisor calculated my original distribution using the Annuity۝ method with the variables of a reasonable۝ interest rate of 7.25% and an expected plan growth of 10%; and that the mortality table used appears to have been Sec 1.72 (1983).
Beginning in the year 2000, 3% cost of living adjustments began in this and subsequent years to date without interruption. Monthly distributions have continued without interruption since May 99 to date.
Unfortunately due to poor management and diversification by two investment advisory firms and due to the market collapse in 2000, and due to the continued monthly distributions, the balance in my IRA currently (as of March 2005) stands at just under $300,000.
At age 50, it’s apparent that the balance of this IRA will be exhausted in less than 4 years and I will be much younger than 59 _.
My CPA tells me that 2002-62 allows plans that run out of funds to NOT incur the 10% penalty tax. I’m still scared to death that somehow I will fall under some IRS rule that will penalize me even further for the disaster that has already occurred to my IRA.
My spouse’s IRA and savings will be more that enough for our retirements۝ as long as we don’t get hit with an IRS tax penalty. Should I let the monthly distributions continue until the IRA is empty or should I consider a one time recalculation to preserve the IRA. If I do a one time recalculation, can I initiate it at any time before the IRA is empty or does there have to be a specific balance (based on % or otherwise) still residing in this IRA.
Every month I receive the distribution, it represents an even larger percent of the remaining IRA balance, I get more worried and stressed. Any help or advice would be greatly appreciated. This CPA was the one I had in the beginning of this process so I’m not comfortable with the assurance but hope she is right.2005-03-06 22:19, By: LOSING SLEEP, IP: [65.186.0.178]

L2: 72t IRA Running on EmptyHello Sleepless:
Your CPA is fundamentally correct although I suspect you mis-heard one of his coments. What you now face is essentially a cashflow / tax management issue knowing full well that your IRA is not going to last as I suspect your annual distributions are probably up around $65,000 a year at this point. Your choices are:
1. Continue with distributions just as originally planned. When the IRA is drained to zero your distributions stop —- end of plan — no penalties.
2. At any time you may elect a one-time method change to the required minimum distribution menthod. At age 50 this means that your annual distribution would fall into the $8,000 to $9,000 range for 2005. The RMD method further requires thatyou recalculate every year going forward as well; e.g. taking oyur 12/31/XX balance every year and dividing it by your new life expectancy. Again, this method change is permissible and no penalties are involved; however, notice the severe drop in your annual distributions.
TheBadger
wjstecker@wispertel.net
2005-03-07 08:08, By: TheBadger, IP: [66.250.23.21]