annual distribution i choose the amount

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L1: annual distribution i choose the amounthello. easy question. let say, for example, i’m 55, and have 800 thousand dollars in an ira account. i will do a 72t for the next 5 years. my 800k is invested in 15 year cd’s yielding 4% annually – $32,000 per year. i think i can do a 72t and take out from my ira $32,000 for the next five years. am i correct? 2009-01-23 17:37, By: muddlehead, IP: []
L2: annual distribution i choose the amountEasy question? No, not really. 72t is more complicated than this. There are 3 IRS approved methods of calculating the annual 72t distribution amount and what you are suggesting is not one of them. Use the calculator on this web site to determine what your 72t distributions can be that will meet IRS requirements. You will need info, such as: your date of birth, amount in IRA, Federal mid-term interest rate, and some sort of life expectancy number from one of the IRS charts. The calculator will plug in some of this for you. It is simple to use and works very well. Using these, you can calculate an amount to withdraw from your IRA for the next 5 years that will meet IRS requirements. Don’t forget to use the last payment calculator as well. It will tell you when the SEPP ends, which is a very important date.Once you start these payments, you must not vary them at all unless you select the 1-time switch from amortization or annuitization to the RMD calculation method. People do this sometimes when they either don’t need to withdraw so much as the other methods allow or their account has diminished to the point that they are afraid of emptying it completely.To sum up, do the following:1) calculate the distribution amount that is allowed under 72t rules2) adjust this amount by varying the interest rate OR the amount in your IRA3) contact your IRA custodian and tell them what you want to do4) complete any paperwork that the custodian sends you5) invest in the CDs of your choice and direct that the earnings go into a money market fund inside your IRA and that all SEPP payments come from this money market fund. Don’t forget to keep some extra cash in this money market fund so that you can make your SEPP payments in between CD earnings coming into the money market fund.6) monitor your account to make sure that the amount distributed is exactly as you have calculated… no more and no less.2009-01-23 18:04, By: Ed_B, IP: []

L3: annual distribution i choose the amountthanks for the reply. where’s the complication and complexity? plugged my set of numbers into the calculator. it said i can take out 41k a year under annuitization method. please be clear with your answer and i appreciate the time in advance. are you saying the irs won’t permit me to take out 32k per year?2009-01-23 18:19, By: muddlehead, IP: []

L4: annual distribution i choose the amountIt isn’t as easy as you want to make it…At your age, if you allocate $800k to the plan at 3.57% interest, you generate a distribution of $41.k (your numbers, I didn’t check). You must take out the exact amount calculated-no more and no less.It takes less than $800k, so start with the reverse calculator to determine the amount required to have an annual distribution of $32k. Separate the IRA into 2 parts – one for the SEPP and the balance in another account with a totally separate account number. Distributions come from the SEPP only. Also make sure that there is sufficient liquid cash to meet the payment – one of the problems with using CDs to fund a SEPP.2009-01-23 18:51, By: Gfw, IP: []

L5: annual distribution i choose the amountthanks so much for the reply. love this board, and the free information provided. respectfully have to disagree, however. irs would never question my payout of 4% in my example. that is a totally reasonable interest rate for the investment and withdrawal plan under 72t. and, ouch, one sure doesn’t need another separate account numbered ira account. where did that come from?2009-01-23 19:03, By: muddlehead, IP: []

L6: annual distribution i choose the amount>>that is a totally reasonable interest rate for the investment and withdrawal plan under 72tI suggest that you start by reading and studying the rules regarding a SEPP plan. For a plan started this month, themaximum interest rate is 3.57%. Next month it will be3.43% and yes the IRS would question your plan. If you use a 4% interest rate you will start out with a busted plan, not a SEPP.>>one sure doesn’t need another separate account numbered ira account.Then allocate all $800k to your plan and take the 41k.>>love this board, and the free information providedThe information is only good if you take advantage of it. From your last post, you will start out with a busted planned in a year or two you’ll be coming back asking “what went wrong?”There is really no point in asking the questions if you don’t listen to the answers.2009-01-23 19:30, By: Gfw, IP: []

L7: annual distribution i choose the amountIsn’t it interesting when people who do not know what they are doing argue with others who do? :-/2009-01-23 21:57, By: Ed_B, IP: []

L8: annual distribution i choose the amountmuddlehead,The following is copied form Notice 2002-62 regarding the permissible interest rate:>>>>>>>>>>>>>>.(c) Interest rates. The interest rate that may be used is any interest rate that is not more than 120 percent of the federal mid-term rate (determined in accordance with 1274(d) for either of the two months immediately preceding the month in which the distribution begins). The revenue rulings that contain the 1274(d) federal mid-term rates may be found at www.irs.govtax_regsfedrates.html. >>>>>>>>>>>>>>Note that the rate cannot be MORE than the 120% mid term rate, the highest of which is 3.57 as gf indicated. Therefore, 3.57 is your max rate if you start your plan this month, but you CAN go lower. If you wanted to, you could calculate the lower rate at which your entire balance would yield a 32,000 annual payout.However, that would leave you without an emergency IRA account which you could use for additional withdrawals that would be penalized, but your SEPP plan would be protected from retroactive interest to day 1. To take advantage of the flexibility of having an IRA account outside your SEPP, use the highest possible rate and reduce the account value by partitioning the IRA into two accounts, one producing the 32,000 you need and the other kept separate for any emergency needs.2009-01-23 22:18, By: Alan S., IP: []

L9: annual distribution i choose the amountwhoa, forgive me friends. apologies to all if my tone was offensive. unintended. appreciate the education. i find it absolutely stunning (gee, that’s a surprise) that my conservative foolproof example would be unacceptable. i’m speechless that insured cd’s in an major brokerage ira account (fdic insured up to 250k per cd) would cause our dear irs to question my actions. that’s why i came here and asked. before commencing, i will try the irs private ruling route and i’ll let you know… thanks again…2009-01-23 23:58, By: muddlehead, IP: []

L10: annual distribution i choose the amountGood morning Muddlehead. (What an interesteing name!)Let’s look at your last statement.”i will try the irs private ruling route and i’ll let you know…”Please don’t take offense, but do you enjoy wasting money? There have been plenty of PLR’s filed trying to support exactly what you are suggesting, and they have all been shot down. If you file a PLR your are looking at many thousands of dollars for the exercise and you will lose.The rules are simple: Calculate your SEPP Plan distribution amount using the calculators on this site, or any other site of your choosing, or get an actuary to do it for you or, if you are really good at actuarial math, run the numbers yourself. Select the month you wish for your first distribution (the actual date of this distribution will be your SEPP Plan Start Date), use the 120% AFR from either of the two previous months andyour account value (this value has some flexibility but don’t be too radical), select the methodology (Amoritzation, Annuitization or RMD) of your choice, then run the calculations to determine your annual distribution amount. You havethree choices for setting up your plan.The first is to use one IRA account with all of your money ($800k), do the calculations using the full 120% AFR rate and accept the $41k (your calculation) annual distribution.Second choice is to use one IRA account with all of your money ($800k), do the calculations using an interest rate that is LESS THAN the 120% AFR to get closer to your desired distribution amount ($32k as I recall).The third choice, which has been suggested already, is to use the reverse calculator on this site to determine how much money you need in a SEPP Plan IRA account to generate your desired amount ($32k) using the maximum, 120% AFR. The remaining amount will be transferred to a new, Non-SEPP Plan IRA account with A SEPARATE ACCOUNT NUMBER FROM THE SEPP PLAN IRA ACCOUNT. They have to have separate and unique account numbers to be legal.Again, I don’t want to sound harsh, but this is how it works. The long-time posters on this board have answered your questions numerous times and, no, you are not the first and won’t be the last to test your concept for a SEPP Plan, only to find out it doesn’t work.Good luck.Jim2009-01-28 16:17, By: Jim, IP: []

L2: annual distribution i choose the amountthanks once more everyone for the education(my given name is doofus, jim)i will henceforth set out and spread my new found knowledge to the masses 2009-01-28 16:29, By: muddlehead, IP: []