Annual re-calculation dates.
L1: Annual re-calculation dates.
Just a little academic exploration here to satisify my curiousity.
Traditional IRA Balance $130K as of Sept. 2011. . SEPP plan using amortization method with annual re-calculation, commencing in October 2011. 2011 is not a stub year.
Participant Age is 48. Presume quarterly distributions during the plan year.
Interest rate will be the highest of the 120% midterm rates of the two preceeding months of the initial distribution.
In 2011 I would need to take the full calculated withdrawal ammount.
At the turn to 2012 I need to recalculate my withdrawal, (using the established formula and updated values for principal, interest, life expectancy), for the 2012 year.
I do the re-calculation again the next year and so on until the plan ends when I turn 59 1/2.
I do not expect to have accurate year end account balance numbers, or published interest rates until after the turn of the calendar year.
What is the forum recommended annual re-calculation date?
Before the end of the calendar year?
before the first distribution in the next calendar year?
Thank you for your time. Sincerely.
2011-09-19 00:15, By: Lost_in_Samoa, IP: [220.127.116.11]
L2: Annual re-calculation dates.
If you opt for annual recalculation, you need to use the 12/31/yy ending balance to compute the payout for YY+1 (each year after initial calendar year ends) so use 12/31/2011 to compute the 2012 calendar year payments. With that in mind, I would avoid
a payment date early in January, since you need time to compute next year total and supply the new QTRLY payments to your custodian. If they send first payment (i.e. in January 2012) before getting your new figures, you will have to have them adjust the remaining
payments so they all add up to the new calculation for that year. In the year I switched from AMORT to Required minimum withdrawal method, I advised my custodian to suspend my January payment until I provided new monthly payment amount under RMD for that
year (my final year of the SEPP) and they did that, so Jan payment was about 4 days late.
2011-09-19 03:45, By: Ken, IP: [18.104.22.168]
L3: Annual re-calculation dates.
2011-09-19 04:02, By: Lost_in_Samoa, IP: [22.214.171.124]
L4: Annual re-calculation dates.
I agree with Ken.
The following comments do not affect your main question about recalculation mechanics. They are just made to attempt to fine tune the term “stub year”.
While I am not aware of any formal definition for “stub year”, I would consider 2011 to bea stub year because your plan was not in affect until the month of the first distribution and that was not January. Therefore, the plan
willinclude a minimum of 6different calendar years and perhaps several more . I know that your option to take out the full annual amount in 2011 led to your comment about a “stub year”, but I do not believe that the option to take a full year distribution
technically changes that first year from being a stub year.
The modification date for your plancannot be determined without knowing the starting month and yearofdistribution, and distributions prior to the plan start date are totally separate from the plan for purposes of plan validity,
even though they may affect the date you must use for your initial account balance.
2011-09-19 04:47, By: Alan S., IP: [126.96.36.199]
L5: Annual re-calculation dates.
I may be wrong, but I believe that his “stub year” comment referred to the fact that 2011 was not his first year, and that he had started his plan before 2011.
2011-09-19 05:24, By: dlzallestaxes, IP: [188.8.131.52]
L6: Annual re-calculation dates.
Ok now I am confused. I used the term “stub year” to reflect that my plan will start in 2011. 2011 is almost over. I want to take a full year distribution for 2011, before 2012. Perhaps I should have used the term “stub period”.
That was my understanding from pg. 75 of the 72T book.
Am I missing something?
2011-09-19 07:47, By: Lost_in_Samoa, IP: [184.108.40.206]
L7: Annual re-calculation dates.
A stub year is usually referenced when taking a partial year payment in either the first year or final year. For example, in 2011 if your plan started in November and you took 2/12s, of the annual then you would have used a stub year. If you start in November
and take an annual distribution, it typically would not be referenced as a stub year.
For a recalculation date, I would use January 1 and the previous 12/31 as the date for the account balance. You don’t actually have to perform the recalculation on that date, it merely locks in the time period to use for interest rates.
In 2012, you would use…
the 12/31/2011 account balance The interest rate for either 11/2011 or 12/2011 Your attained age as of 12/31/2012
After doing the recalculation you would notify your IRA trustee/custodian of the new payment schedule for your 2012 distributions. Your IRA custodian/Trustee will not be too helpful in monitoring the distributions to insure that you get the right annual
amount, so you need to take responsibility to make sure that you take no more and no less than the annual distribution amount as calculated.
If you haven’t already viewed, these two links may be helpful…
http://72t.net/72t/Sample/Form Planning Pointers: http://72t.net/72t/Planning/Pointers
2011-09-19 09:13, By: Gfw, IP: [220.127.116.11]
L8: Annual re-calculation dates.
To DLZ- The poster said in initial comment: “SEPP plan using amortization method with annual re-calculation,
commencing in October 2011.” Sometimes I find your replies (i.e. stub year one above) tendto confuse the issue. KEN
2011-09-19 13:55, By: Ken, IP: [18.104.22.168]
L9: Annual re-calculation dates.
Sorry. You are right. I should probably print out the initial posting before I respond to downstream responses. I forget some of the exact wording of facts.
I always thought that “stub year” referred to a plan starting after 1/31, regardless of whether someone took a prorata amount or a full annual amount. I thought that those were options for withdrawals during the “stub period/year”. Now I understand that
stub period/year only refers to the initial or final year if less than the ful annual payment is taken.
I missed the fact that he was starting Oct. 2011.
2011-09-19 20:16, By: dlzallestaxes, IP: [22.214.171.124]
L10: Annual re-calculation dates.
I also thought the term was being applied to describe the years in the plan for which the SEPP was not in force all 12 months. Since the term has not been formally defined by the IRS, it may have evolved to mean different things
to different people.
Entering the final calendar year of a plan, a taxpayer meeting certain requirements may have the choice to distribute either the full amount, a pro rated amount or nothing. I had been referring to that year as a stub year with
3 choices. If we establish a definition based on payment election, then the taxpayer who elects to distribute the full amount in the final year would be making the election that the final year would NOT be considered a stub year, and of course that would also
apply to the election made for the first year.
2011-09-19 21:09, By: Alan S., IP: [126.96.36.199]