L1: 72t question
I have a client, birthday is 1/27/56, and am establishing a new 72t, annuitization method, starting September 2nd, 2011. On Jan. 1, the funds were in a pension plan and a 403(B). I’ve combined those into an IRA at this point with current value $184,000.
Jan 1 value of the pension/403(B) was 168,000. Here are my questions.
First, are these assets eligible for distribution in 2011 since they werent TECHNICALLY in an IRA on January 1st ’11/December 31st ’10 or does the client have to wait until 2012? Secondly, the client wants monthly distributions rather than annual. So in
2011, they would only take out 4 of the typically necessary 12 monthly payments to equal the annual amount. Is this allowed, or do they need to get out the full annual amount by the end of the calendar year?
2011-08-08 16:32, By: SJK84, IP: [188.8.131.52]
L2: 72t question
The assets are eligible for distribution in 2011, but the account balance used in the calculation must be the combined IRA balance after both plans were rolled over. The IRA balance for any day after all the funds arrived up
to the day the first distribution was ordered would be acceptable. A balance while the funds were still with the employer is not allowed. Since we are in the midst of yet another market meltdown, a reminder should be made that the account balance must be reasonable
in relation to the current balance. If the IRA totalled 200k when received, but dropped to 150k before the first distribution was ordered, 200k would no longer be a reasonable representation of the value. You would have to move the account balance day forward
to get within 15% or so of the current value to be “close enough” for the IRS.
If the first 72t distribution is made in Sept, 2011, the client has a choice of either the full annual calculation or 4/12 of the full annual calculation. In other words, if there will be 4 equal distributions, then each distribution
can be 1/12 of the annual amount or 3/12 of the annual amount, but nothing between those two figures is allowed. The monthly distributions do not have to be equal either, but as of 12/31 the total distributed must be either the full annual amount or 4/12 of
the annual amount.
2011-08-08 17:29, By: Alan S., IP: [184.108.40.206]
L2: 72t question
Based on the date of birth and a start date of 09/01/2011, you will be running a 5-year plan – make sure that you understand Arnold v Commissioner.Alan S posted a link
If it were my plan (and this is just my opinion) I would take the full annual distribution in September and also make sure that I knew when the first plan modification date occurs.
2011-08-08 17:45, By: Gfw, IP: [220.127.116.11]
L3: 72t question
Based on the questions in your original post, I will assume that you are a financial advisor of some sort, and that you do not have a complete grasp of 72(t) / SEPP Plan concepts. For example, you stated that you were using the annuitization method when
the amortization method will always yield the greatest distribution amount.
Before you move forward advising your client my suggestion is to buy Bill Stecker’s book from this website and study it thoroughly. This is the best reference document you will find on the subject of SEPP Plans.
Next you should review the FAQ’s on this website. This document contains a collection of comments from current and past posters that will answer many of your questions.
Finally, use the worksheets found on this site to document how your client set up a compliant plan that will stand up to IRS scrutney.
2011-08-09 15:01, By: Jim F, IP: [18.104.22.168]