72t year end
L1: 72t year endHello: If I were to set up a 72t this month and take a lump sum payment does that mean that my year one is 2010? And my end date of the plan would be Sept. 2014? Or is the end date of the plan August 2015 which is when I turn 59 1/2?2010-09-02 18:00, By: rosa, IP: [220.127.116.11]
L2: 72t year endStart with our First Modification Date caluclator http://72t.net/72t/Calculator/First/Modificaton/Date
Input you information and your questions will be answered 2010-09-02 18:14, By: Gfw, IP: [18.104.22.168]
L3: 72t year endThis question is asked, and answered, almost daily.
The rules are simple :
1. You must take distributions which equal 5 times the annual calculated amount.
2. You must continue the plan for at least 60 months, or until 59 1/2 if later.
3. Even though you might take a full year’s distribution in the first month, and every year afterwards, and take your 5th annual distribution 49 months after you start, you still mut wait until after the 60th month to terminate your plan, or to take any more than the calculated amounts.2010-09-02 18:24, By: dlzallestaxes, IP: [22.214.171.124]
L4: 72t year endThank you! That’s a relief! I misunderstood the plan. I have another question. A retirement specialist at Fidelity, who manages my IRA, stated to me that setting up a 72t under the ammortization method would allow me to take a lump sum for 2010 however, I would NOT be able to change to a monthly distribution beginning January 2011. She mention IRS code 72(t)(2)(a)(IV). I will need to look that up, but wondered if anyone on this forum is familiar with this code and could confirm whether or not I may change from a lump sum payment to a monthly distribution the following year (2011).
Again, thanks for your assistance in this matter.2010-09-02 19:00, By: rosa, IP: [126.96.36.199]
L5: 72t year endGET ANOTHER SPECIALIST OR GO TO ANOTHER COMPANY WHO UNDERSTANDS SEPP 72-T.
You can change the frequency of your payments during any year, and in various years, so long as your ANNUAL DISTRIBUTION is the same, except for the possible prorata amounts in the first and last year.2010-09-02 19:13, By: dlzallestaxes, IP: [188.8.131.52]
L5: 72t year end>>however, I would NOT be able to change to a monthly distribution beginning January 2011.He is probably quoting a Fidelity rule, not an IRS rule. Except for possible variations in teh first and last year, You can take any amount at any time as long as on 12/31 you take out the amount of the calculated annual distribution – no more and no less.
72(t)(2)(A)(iv) part of a series of substantially equal periodic payments (not less frequently than annually) made for the life (or life expectancy) of the employee or the joint lives (or joint life expectancies) of such employee and his designated beneficiary,2010-09-02 19:15, By: Gfw, IP: [184.108.40.206]
L6: 72t year endThis Rep was probably interpreting the meaning of the referenced code section on his own. And his conclusion would be quite reasonable.
However, this underscores the fact that many facets of 72t plan administration have evolved out of PLRs or tax court decisions, and therefore even a rational interpretation of the code could wellbe incorrect, as this Fidelity Rep illustrates.
There are 3 PLRs listed on this site under the FAQs. I suspect that this Rep decided this on his own because if this was a blanket Fidelity rule, as large as they are, we would be reading plenty of posts complaining about this. I wonder though if Fidelity is just encouraging a fixed distribution pattern to help control their expenses……..2010-09-02 19:42, By: Alan S., IP: [220.127.116.11]
L7: 72t year endWow! I should have a PHD after all of this.. : ) I sincerely want to thank all of you for the info. I will be re-addressing this matter with Fidelity. A lump sum would be extremely helpful to me right now, but not if I have to take a lump sum each and every year… And if Fidelity’s expenses are what is causing my advisor to “advise” me otherwise, then I guess I will have to probably consider taking my money and business elsewhere.. I will keep you posted as the drama unfolds… : ) 2010-09-02 20:02, By: Rosa, IP: [18.104.22.168]
L8: 72t year endJust to be fair to Fidelity and the advisor, and any advisor, they may think that they are doing you a favor by recommending monthly distributions because these can be programmed into their computer, and minimize the problems that you can cause yourself by self-directing the payments. It is imperative that whether you direct the payments yourself, or have any company do it automatically, that YOU check the year-to-date distributions by 12/15 to make sure that you have taken/received the correct ANNUAL TOTAL. If you check it later than 12/15, you may not have time for them to correct for any error, regardless of whose fault it was.
For “full disclosure”, my daughter works for Vanguard. She is now in charge of the major project re ” AUTOMATIC ELECTRONIC COST BASIS REPORTING TO IRS” of all securities sales which will start for brokerage firms 1/1/2011, and for mutual fund companies 1/1/2012. Vanguard has started very early to “get ahead of the curve” and consider all of the nuances.
FYI Starting as of the above dates, you will be REQUIRED to identify which lot you are selling AT THE TIME YOU PLACE THE SALE ORDER, not waiting until you or your tax practitioner prepares your tax return. If you do not specify, then it will AUTOMATICALLY be FIFO (first in, first out) for stocks, and “moving average” for mutual funds.
A nuance she brought to my attention today is “cost basis” from “non-deductible contributions to IRAs, and cost basis rolled over to IRAs from retirement plans which had “after-tax contributions” in the original plan. This also can involve these types of accounts when they are inherited because that cost basis remains with the accounts forever to be used to reduce the taxability of the distributions. This also can affect SEPP 72-T distributions.2010-09-02 20:20, By: dlzallestaxes, IP: [22.214.171.124]
L9: 72t year end>>A nuance she brought to my attention today is “cost basis” from “non-deductible contributions to IRAsInteresting… especially since most companies have never tracked traditional non-deductible contributions. It has always been up to the individual.2010-09-02 20:29, By: gfw, IP: [126.96.36.199]
L9: 72t year endThank you for the detailed information you’ve provided. But I must admit, the information is way above my level of comprehension. I’m sure you’re providing me guidance of some sort, but I’m not sure how I may use it. Suffice it to say, I have a lot of homework to do with regard to my understanding 72t’s and my future distributions and I have a very short time to grasp it all, as I plan on beginning my distributions this month. But I thank you for the heads up with regard to identifying what I sell. I guess when I get to that point, I’ll have more questions.
Thank you very much for taking the time to provide the info.
Rosa2010-09-02 20:30, By: rosa, IP: [188.8.131.52]
L10: 72t year endRosa:
The discussion about cost basis will not affect you at this time and you shouldn’t worry about it. Focus on the rules for setting up a good SEPP Plan. Study the FAQ’s and other information on this site, and keep asking questions … we like to answer them!
Good luck and have a safe holiday.
Jim2010-09-02 20:39, By: Jim, IP: [184.108.40.206]
L10: 72t year endCLARIFICATION Cost Basis identification of sales will be for TAXABLE ACCOUNTS, not for sales within IRAs or RETIREMENT ACCOUNTS. Sorry if I confused anyone by my posting.
ROSA Unless you are starting your distributions in Sept because of the interest rate that you are using in your calculation, you could take your 1st distribution in Dec, and it could be the same annual amount as starting in Sept, except for changes in the account valuation and interest rate used in the calculation.2010-09-02 20:39, By: dlzallestaxes, IP: [220.127.116.11]
L11: 72t year endThank you. I just downloaded the form that Fidelity wants me to fill out in order to begin my distributions. I see an option where one could make a change to their Personal Withdrawal Service Form (PWS). But it doesn’t ask what change the person is making. It just says “check this box to change an existing PWS plan”. So the question that I will pose to them is “what type of changes is one allowed to make on the plan other than a name change?” I read all 12 pages of the form. Yes, 12 pages… It’s a slow day here in NY, so I have some time on my hands but I don’t want to play a guessing game with my livelihood. So I will be calling them again. I’m of the opinion that Gfw is right on when he/she said it might be a Fidelity rule and not an IRS rule. If that proves to be true, that it is a Fidelity rule, do I have any recourse other than to take my business elsewhere? 2010-09-02 21:08, By: Rosa, IP: [18.104.22.168]
L12: 72t year endThere are always options. If you have confidence in what your are doing, Fidelity only needs to be involved to the extent that they send you the requested distribution amounts. You won’t receive a code of ‘2’ on your 1099, but using even a simple tax program like Turbo Tax, it will add the appropriate forms to claim the exemption.
Also make sure that you read our planning pointers at http://72t.net/72t/Planning/Pointers- for tips on withdrawal dates, etc.2010-09-02 21:22, By: Gfw, IP: [22.214.171.124]
L13: 72t year endThanks Gfw. So this is what I learned a few minutes ago. (I tried responding earlier but received an error message.)
I called Fidelity back and learned that it’s not a Fidelity rule. I guess that they are concerned that with a change from lump sum to monthly, the dollar amount would change and thereby cause me to incur the 10% penalty. I don’t see how that could happen since Fidelity will be doing the payout calculations, but I guess they are just covering themselves. I know I have to keep track of the payments to make sure that at the end of year 2011 I have received the same amount in total to equal what I received as a lump sum in 2010, so I will definitely make sure to monitor that. But then, as were speaking, I was told that I could use the Single Life Expectancy amount rather than the Joint Life Expectancy rate. I thought that if the person were married, which I am, they would need to use the joint life rate. Am I wrong?2010-09-02 22:22, By: Rosa, IP: [126.96.36.199]
L14: 72t year endUnder normal circumstances you will NOT use the “Joint Life” calculations. The “Single Life” tables assume up to a 10 year age difference between spouses. If the actual age difference between spouseswere greater than 10 years then the “Joint Life” calculations would be more advantageous. This would come into play for an “Annual Recalculation” scenario like in the RMD method.
When you file a new form with a fund company to make any changes, the new information REPLACES the old information. So if the form you have gives you the option to specify a distribution frequency, then by checking the “Monthly” box will replace the “Annual” distribution you originally set up. This process applies especially when you change the beneficiaries on your IRA for example.
Jim2010-09-03 13:57, By: Jim, IP: [188.8.131.52]
L15: 72t year endJim,
That first paragraph is confusing. The single LE table does not include any joint life assumption, just the individual. Were you thinking of RMDs (not MD SEPP method) where the Uniform Table assumes a spouse 10 years younger?
Anyway, she is using amortization so will not selectANY table, just the individual vrs joint option in the calculator. And as you said, the individual option will always produce the highest payout.2010-09-03 18:52, By: Alan S., IP: [184.108.40.206]
L16: 72t year endHe may have been referring to the way that our calculator is set up. If someone uses the joint calculations and the age difference is less than 10 years, the uniform table using the 10 year spread is used. If over 10 years, then the joint calculations are using the actual age difference.2010-09-03 19:01, By: gfw, IP: [220.127.116.11]
L17: 72t year endgfw,
I just testedsome joint calculations under both the MD and the amortization methods. In each case increasing the age of the (younger)beneficiary closer to the age of the owner increased the monthly payout.
For owner I used age 50 for all. For beneficiary ages I used 35, 40 and 45 and for each higher age, the payout increased. You think it should have been the same for beneficiary age 40 and 45, since both are within 10 years of owner’s age?2010-09-03 23:29, By: Alan S., IP: [18.104.22.168]
L18: 72t year endHello: I have a question regarding the distribution amount used for payout calculation. I have read that when one is setting up their 72t, the amount used for payout whether it be an annual lump sum or monthly distribution, is December of the previous year. So I’m taking that to mean that I will be using the rate of whatever was in my IRA December 2009. But if I have more money in my IRA this month vs. December 2009, may I use what I have now rather than then? Or is it an IRA rule that I must use the December 2009 rate?2010-09-21 01:48, By: Rosa, IP: [22.214.171.124]
L19: 72t year endIn some cases, it CAN be the prior year end balance, but this late in the year you should not be using a balance more than 6 months old. You must also elect a balance that is representative of your current balance, ie probably no more than 20% higher or lower than your current balance.
Using your current balance is fine, since it will obviously be the most representative valuation you could use. If you want to use an older balance, it is best not to go back beyond 3/31, but you can use any balance that you can document with a statement copy (even an on line printout) that is not more than 20% different than your current balance. The market was at it’s highest point at the end of April, so you might want to choose the 4/30 value if it is not more than 20% higher than your current value.
The IRS has not stated what variance is reasonable, so the 20% figure is just a guess on my part. But avoid using the 12/31 balance this late in the year.2010-09-21 02:28, By: Alan S., IP: [126.96.36.199]
L20: 72t year endThank you Alan. Actually, I was hoping you would say what you’ve said. You see, I thought I had a certain amount of money in my IRA, which I did, but it was two separate IRAs. When I read my quarterly report, I only looked at the bottom line which said I had an IRA of $500K. But in actuality I had $300K in one IRA, which is a Fidelity managed account, and $200K in another which is a stock account. Earlier this year, I sold most of my stock, since it wasn’t doing much and added that to my managed account. So today my managed account is valued at $500K and my stock account (a separate IRA) at $40K. I’m hoping Fidelity will allow me to make the change and use Sept 2010’s rate vs. December 2009 since they haven’t cut a check yet. I truly appreciate your quick response to my inquiries. This is one remarkable and useful tool..2010-09-21 03:02, By: Rosa, IP: [188.8.131.52]
L21: 72t year end>>So I’m taking that to mean that I will be using the rate of whatever was in my IRA December 2009.
Just to be clear. The interest rate that you will be using has nothing to do with the account valuation date.
The maximum interest rate that must be used is the higher of the rate for either of the 2 months preceding the date of the first distribution.2010-09-21 09:30, By: Gfw, IP: [184.108.40.206]
L22: 72t year endYes, I understand the interest rate and how it relates to the account balance. But what I didn’t understand was that I had two separate accounts. One managed account and one stock account. I ASSUMED that when Fidelity would do their calculations they would use the sum of the two accounts. But that is not the case. They only used the managed account’s total which was valued at $300K in December 2009. Since then, I have sold most of my stock account and added that monies into the managed account brining the managed account up to $500K which is what I needed for payout purposes. Now my question is can they use they use this month’s time vs. December 2009. I’ll be speaking with them today to find out. I’ve got my fingers crossed!2010-09-21 13:04, By: rosa, IP: [220.127.116.11]
L23: 72t year endIf you are depending on Fidelity to do everything for you, then you need to contact Fidelity.
Tell them the balance that you want to use.
However, regardless of what they do, it is your responsibility – not theirs. From our Planning Pointers page…
Most Important- It is your responsibility. Don’t assume that someone else is taking care of your plan. Check the calculations and make sure that in early December of each year you check to make sure that you will have received the total annual distribution for the year. There may be a 60 days window to rollover excess distributions, but there is no window of time to take additional funds out of the plan after 12/31 to meet the required annual payment.2010-09-21 13:10, By: Gfw, IP: [18.104.22.168]
L24: 72t year endWith respect to the two accounts, you must decide if you want the total of those two accounts to be used in your calculation. If so, then both accounts are part of your plan and you can take distributions from either or both of them. Another alternative since the stock IRA is so small is to leave that IRA account outside your plan and use it for emergency needs.
Note that if you choose to use only the large IRA account for your plan, then you cannot use a balance for a date prior to the transfer into that IRA. If you select a given account for your plan, you must use a date for the account balance that is AFTER any distributions or contributions to that account. Otherwise, your account balance is invalid and your plan is therefore invalid.
Fidelity should be told which account numbers are being used for your plan. There may or may not be a benefit of them knowing this, but there is no possible downside to advising them.
2010-09-21 17:54, By: Alan S., IP: [22.214.171.124]
L25: 72t year endThank you Alan. Well, after speaking with them this morning, they advised that they CAN use 9/17/2010 information. Which is great because on that date the account was valued at a little over $500K. With regard to the Stock account which is now valued at a little over $40K, I’m leaving it alone for now as a separate IRA just in case any emergency may come up that would require me to tap into that. So all worked out ok. I will get a lump sum payment at the end of this month and then in January 2011 I will change that to monthly payments. I asked Fidelity about that and they said it can be done with no problem as long as I file the paper work in December of this year to change from annual payments to monthly. So I guess all is ok. I just have to keep an on the payments to make sure that at the end of 2011 I would have received the same total as 2010. Again, I thank you for information and assistance. It is greatly appreciated.2010-09-21 22:45, By: Rosa, IP: [126.96.36.199]