amount less than rate allows

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L1: amount less than rate allowsif client with $250k in utilized IRAs, using 4.53% allowable rate, attained age 38, wants $1,000/month, does she have to reduce account values to an amount using current rates that just provides that level of income??
or can she use full balance(not easily partially transferrable out)and use a lower rate “not in excess of” the allowable 4.53% to make calculations work out and still take her $1000/month? 2005-02-04 12:32, By: ralphccbi, IP: [12.107.192.130]

L2: amount less than rate allowsEither options works, but the first (to split) offers a lot more flexibility in terms of offering a source of emergency funds that remain out side the SEPP. 2005-02-04 12:55, By: Gfw, IP: [172.16.1.71]

L2: amount less than rate allowsHello ralph:
Gordon is correct. I would take it a step further. The IRS has already ruled on this issue — ADVERSELY — e.g. the IRS disallowed a taxpayer from using just a portion of his/her account balance to compute the SEPP distribution. Instead, a taxpayer must use the entire account balance or don’t use the account. This is why taxpayers should normally split an IRA into two before commencing a SEPP plan; along with added benefit of having some dry powder on the side.
In this case because the account, for whatever reason, is not easily divisable, simply document the plan carefully and specifically adopt and interest rate of 3.996% which will get you to exactly $12,000 / year.
TheBadger
wjstecker@wispertel.net
2005-02-04 13:42, By: TheBadger, IP: [66.250.23.21]

L2: amount less than rate allowsHi Ralph:
When you say the IRA funds are ‘not easily partially transferrable out’ from the existing IRA, that leaves some questions about the situation. I ran a ‘Reverse Calculation’ and found a need of about $230k to generate the $12,000 per year at 4.53%, or about 10% or less transferred out of the IRA to get the proper amount for the distributions.
My suggestion is to thoroughly evaluate exactly what the adverse impact would be for transferring some money out so you could use the full 4.53% in your calculations. At age 38 your client is looking at 21.5 years of SEPP distributions, and having the funds locked up that long could be hazardous. What if she took 20 years of distributions and then had to ‘bust’ the plan. Would that penalty be worth avoiding the current charges to reduce the IRA now to the level needed for the 4.53% distribution? Like Gfw said, it is good to have a second IRA on the side for emergencies rather than having to bust a plan.
Hope these thoughts are helpful.
Jim2005-02-04 14:14, By: Jim, IP: [70.184.1.35]