Annual Distribution Change
L1: Annual Distribution ChangeI initiated a SEPP February 1, 2008, using my IRA balance as of 12/31/2007 and the amortization method of calculation. Due to the reduction in my IRA balance, I want to reduce my SEPP distributions. My research indicates that the IRA allows for a one-time modification specifically to allow for IRA balance change situations. Section 2.03(b) of Rev. Rul 2002-62 allows a one time change to the required minimum distribution method to determine a new distribution amount. I further understand that when I convert to the required minimum distribution method of calculation, I can choose to use one of three life expectancy tables (1) uniform lifetime table, (2) single life expectancy table, or (3) joint and last survivor table. I wish to reduce my SEPP distribution to the lowest possible amount, so the uniform lifetime table appears to be the appropriate choice. Obviously, I want to ensure that I don’t violate any IRS law/rulings which would create a tax penalty.
My questions are as follows:
1. If I change to the required minimum distribution method on February 1, 2009, what is the total distribution amount I can take in 2009? Using my IRA balance on 12/31/2008 , my age in 2009 and the uniform table, the annual SEPP amount is $20,626. I received a January SEPP distribution of $4,000. If my annual 2009 SEPP distribution can’t exceed $20,626, do I deduct the $4,000 to determine my monthly distributions for the remainder of the year? Or, do I divide $20,626 by 12 months to determine my monthly distributions for the remainder of the year?
2. Going forward, I understand that the SEPP amount must be re-computed annually using an updated IRA balance and an updated life expectancy factor. From what I’ve read, I’m required to be consistentÛ in how the IRA balance is determined. For this reason, I assume I must continue to use my previous year-end balance and my age in the distribution year. To ensure I don’t exceed the required minimum distribution annual amount, I want to effect the 2010, 2011, etc. changes on January 1. Is it acceptable to change the date as I initially initiated the SEPP on February 1 not January 1. Also, is there any problem with changing the distribution date from the 1st of the month to the 15th of the month so I’ll have time to determine my year-end balance and complete the transaction with my IRA trustee in future years?
2009-01-29 20:48, By: cad69, IP: [18.104.22.168]
L2: Annual Distribution ChangeFor 2009, take $20,626 (I did not check your numbers)less the $4,000 that you have already taken. As long as you take the total of $20,626 during 2009, it makes no difference whether it is on the 1st or the15th. In future years, merely use the previous 12/31 balance.Just make sure that the SEPP lasts to the longer of age 59.5 or 5 years.2009-01-29 23:23, By: Gfw, IP: [22.214.171.124]
L3: Annual Distribution ChangeThank you so much. This is exactly what I construed from my research. I’ve been searching for weeks and have beendisappointed that I couldn’t find anydefinitive IRS rules concerning this situation.2009-01-29 23:46, By: cad69, IP: [126.96.36.199]