account balance question

L1: account balance questionExample: On May 25, 2006, I take my IRA account balance (as of that day) for $99,000.16. I use the interest rate as of 4/1/06 at 5.68%. My age is 50 & the resulting amortization calculation shows my monthly payment as $552.05 amounting to an annual payment of $6,624.61.
On May 27, 2006, I forward a request to my IRA custodian that I begin receiving monthly payments of $552.00. This still amounts to $6,624.00, and is within a $ of the annual payment.
On June 15, 2006, my 1st monthly check for $552.00 is disbursed. Subsequent checks for $552.00 will be mailed out to me on the 15th of every month. My IRA account balance on June 15, 2006, is $99, 899.56.
Question: The check is not cut to me until June 15. Will I have to use the account balance as of June 15 as part of my calculation instead of my May 25 account balance? Does the rest of this scenario seem OK? Thanks.
2006-05-25 13:04, By: Ken, IP: [63.162.143.21]

L2: account balance questionI didn”t check your actual calculation, but you have no reason to worry about the exact date of the account balance figure you used. You could have used any account balance, as far back as year end 2005. Just make a copy of the on line or other statement for the account(s) you used for the SEPP as part of your total documentation for the calculation. Don”t worry about balance changes between that time and when the check was cut. There is also no need for concern over the rounding to the nearest dollar. As you may have read, it is also good that you are not getting a monthly check any later than the 15th, which gives you time to contact the custodian if they somehow mess up in December. Try to provide your custodian with any documentation they need to recognize the SEPP and code your 1099R with a “2” for the SEPP exception. 2006-05-25 19:05, By: Alan S., IP: [24.116.165.157]

L2: account balance questionthanks Alan. I really appreciate the input. I have one question though..
In your post, you said “There is also no need for concern over the rounding to the nearest dollar.” Are you referring to the total monthly payments for the year totalling an amount within 1$ of the calculated annual payment? If so, I thought that the total monthly payments for the year HAS to come out to within 1$ of the annual pay-out. Am I wrong here?
Again, thanks for the help!

2006-05-26 10:00, By: Ken, IP: [63.162.143.21]

L2: account balance questionThere really is no such thing as a monthly SEPP payment, only an annualdistribution taken periodically on a monthly basis. Take the annual and divide by 12 – no need to round anything – if $6,624.61 divided by 12 is $552.05 then merelytake $552.05 – you shouldn”t even be rounding to $552.
Just my thoughts.2006-05-26 10:15, By: Gfw, IP: [172.16.1.74]

L2: account balance questionKen:
If you round down on the monthly payments by 5 cents, you will under distribute for the year, and it”s the annual amount that counts.
One other thought to keep in mind; the start date for your SEPP Plan is the date of the first distribution, not the date you signed any documents. Andin your scenario that would be June 15, 2006 (don”t forget to make your second quarterly Estimated Tax payments also, for all of us faced with that fun task).
Jim2006-05-26 11:25, By: Jim, IP: [70.184.1.35]

L2: account balance questionGfw,
The reason why I round offthe monthly payments to a whole dollar amount.. is because that is the only way money may be disbursed to me on a monthly basis.2006-05-26 11:28, By: Ken, IP: [63.162.143.5]

L2: account balance questionIf you have to “round-down,” then you have a problem that must be resolved before starting distributions.
Jim2006-05-26 11:33, By: Jim, IP: [70.184.1.35]

L2: account balance questionJim,
Is it a problem “rounding down” versus “rounding up” that may be OK here?
I”m looking at a comment made by the Badger on a 2/17 messageby Ken (another Ken) titled “Rounding 72t Annual Payment to Whole Dollars”. The Badger said:
“Rounding and/or truncating the cents on an annual distribution is fine; everything comes out within one dollar. What is not okay is to round a monthly/quarterly distribution amount which when multiplied by 12 or 4 respectively may result in a total annual distribution that is more than one dollar off.”2006-05-26 11:55, By: Ken, IP: [63.162.143.5]

L2: account balance question> If you have to “round-down,” then you have a problem that must be resolved before starting distributions.
This appears to be the first distribution and I”m assuming 120% was used for the interest rate. If that is the case I would think that “rounding down” would not be a problem, it is as if 119.9998% was used for the interest rate in the calculation. Just document the detail to four decimal places.2006-05-26 15:37, By: John, IP: [71.208.223.242]

L2: account balance questionLet me see if I can provide a comprehensive example: assume a beginning balance of $999,978.00; 5.00% is 120% of the MT/AFR and a life expectancy of 30.0 years. This results, using the amortization method, in an annual distribution amount of $65,050.00 as well as a monthly distribution amount of $5,420.83.
If the taxpayer rounds the monthly amount to $5,421 (as might be required by the plan administrator) then the total annual distribution amount becomes $65,052.00; $2.00 more than calculated above. Technically, this is a plan violation as the implied interest rate used is really 5.0003%; an interest rate greater than 120% of the MT/AFR. Now, is anyone going to get upset about this I doubt it; however, the IRC definition of de minimus is less than $1.00; so why take any chances.
Instead, if monthly distributions stated in whole dollars are required, then do not round the monthly amount; instead truncate the monthly amount; e.g. to $5,420.00 resulting in an annual distribution amount of $65,040.00; $10.00 less than calculated above. Therefore, the implied interest rate used becomes 4.9987%; an interest rate that is less than 120% of the MT/AFR; therefore all is fine.2006-05-27 09:33, By: TheBadger, IP: [66.109.211.254]

L2: account balance questionBadger,Your example completed the circle so to speak.. it”s given me a much better picture of the situation.. thanks again!2006-05-27 13:09, By: Ken, IP: [64.223.113.104]