BALANCE DATE ON STARTING 72T WITHDRAWALS

L1: BALANCE DATE ON STARTING 72T WITHDRAWALSMy retirement date was Sept. 1, 2008. I have rolled my 401k into my old traditional IRA and I am going to start my 72T in Oct, 08. My question is with the change in value daily in my IRA since the rollover and the market swings, I want to use the highest balance possible for greater monthly checks. Fidelity says I can use the highest ending daily balance as far back as Dec 31, 2007. My agent has told me no…it will be the balance at the end of the day that I start my 72T or the day that I did my rollover. I”m getting many answers and just don”t want to screw this transaction up. Any help would be greatly appreciated. Anyone that is retired around the Atlanta Georgia area that likes to fish…I need a partner!2008-09-19 17:33, By: COLONEL, IP: [208.61.4.103]
L2: BALANCE DATE ON STARTING 72T WITHDRAWALSI think Fidelity is closer than your agent, but the general consensus is that unless you are using the RMD method, going back over 6 months is walking on thin ice. I would recommend that you pick a date of 4/1 or later up to the day prior to your first 72t distribution. However, you must also be sure that you have not taken an early distribution OR that no contribution was made to the account between the date you elect and your first 72t distribution. Sometimes when you roll a 401k over, there are trailing dividends that hit the IRA after the initial transfer. You will also need to produce a print out of your balance on the day you elect that includes all assets in the account. You should retain that printout in case the IRS inquires about your plan for any reason, since the IRS occasionally is known for their own taxpayer fishing expeditions!Incidentally, on dates after 4/1 to the present, the S&P 500 was at it”s highest point in mid May, only about 3% lower than 12/31/07.2008-09-19 21:50, By: Alan S., IP: [24.116.165.60]

L2: BALANCE DATE ON STARTING 72T WITHDRAWALSGood morning Colonel. Let”s address the fishing first. Come on down to Warner Robins … we have more water than you do in Atlanta.Alan is right about the date you use to establish your balance to work with, especially the part about trailing dividends and interest flowing from your K-plan into your new IRA. If you establish a starting balance for 72(t) calculations and then take your first distribution which is your “SEPP Plan start date,” and then your K-plan transfers even a small amount of money to the IRA, then you have a “busted” plan. My suggestion is to wait about 4-months after transfer to the IRA before taking your first distribution.Your agent”s information about which date to use for the starting balance is probably driven by the custodian of your IRA. I suspect you may be using either a fixed or variable annuity rather than a mutual fund. Some insurance companies interpret 72(t) in a rather strange way. But, like Alan said, you have more latitude to select a valuation date than your current agent is telling you.Since you and I are obviously in the State of Georgia, I could talk with you about your situation and would be happy to. However, I have made it a firm practice not to post either my phone or e-mail on this site. If you would like to talk, send a message to Gordon (Gfw) using the “Contact Us” link above and he will forward it to me. Include your phone and e-mail address. Please note that I will only be in the office Monday and Tuesday of next week.Jim, Major, USAF (Ret)2008-09-20 07:20, By: Jim, IP: [70.167.81.119]

L2: BALANCE DATE ON STARTING 72T WITHDRAWALSQuestion for Alan- If he did not roll his 401k into an IRA until on or after his 9/1/08 retirement, can he really use a May value of his 401k to compute his SEPP? I know if it had already been in the IRA in May, the dates you reference would make sense from what I have read in the past. I would think in this specific case, his starting balance “date range” starts the day the money hits the IRA he was planning to use for the SEPP or a later date, but you know a LOT more than I do. He does also have to be careful about those trailing dividends, etc., which Iexperienced after transferring an IRA to a new custodian.For the COLONEL– You often need to give the custodian a few weeks lead time to issue first payment, so keep in mind that the starting balance figure you choose has to be available to you when you submit your SEPP calculations, desired payment, and payment schedule. If you are trying to use the “higher” AUG midterm rate, you have until end of OCT for that first payment to be issued with that calculation.KEN2008-09-20 07:26, By: Ken, IP: [75.67.65.254]

L2: BALANCE DATE ON STARTING 72T WITHDRAWALSKen,I interpreted the Colonel”s post to mean that the IRA rollover was done some time ago, and that Fidelity was the IRA custodian who wasreferencing going back to year end.However,in the event that Fidelity was also the 401k administrator here and could conceivably have been referring to a401k balance,I completely agree with you that a balance in a non IRA plan should not be usedfor an IRA based72t evenif the 401k was later rolled to an IRA andwith no intervening contributions or distributions.The issue withtrailing dividends also applies whether the 72t has been started or not, if the IRA balance to be used for the 72t pre dated the arrival of the trailing dividend.Now, if you have an IRA account in April, andtransfer that IRA account directly or by rollover to another custodian in June,using the April balance with the former custodian would not be barred as long as you could show no other intervening transactions since both plans are IRAs which can be aggregated within a 72t plan. However, even this might trigger a question from the IRS if they otherwise have cause to audit the plan.In a broad sense, the farther back you go for your account balance, the greater the risk that some intervening distribution might have occurred that you forgot about, so using an older account balance requires greater care to avoid an immediate bust situation.2008-09-20 17:17, By: Alan S., IP: [24.116.165.60]

L2: BALANCE DATE ON STARTING 72T WITHDRAWALSAlso note that while 2002-62 gives an example of time, itstates that the balance used to determine the distributions must be resonable. Stretch the REASONABLE part, and you may be asking for problems.(d) Account balance. The account balance that is used to determine payments must be determined in a reasonable manner based on the facts and circumstances. For example, for an IRA with daily valuations that made its first distribution on July 15, 2003, it would be reasonable to determine the yearly account balance when using the required minimum distribution method based on the value of the IRA from December 31, 2002 to July 15, 2003. For subsequent years, under the required minimum distribution method, it would be reasonable to use the value either on the December 31 of the prior year or on a date within a reasonable period before that year”s distribution.2008-09-20 18:00, By: Gfw, IP: [216.80.125.206]

L2: BALANCE DATE ON STARTING 72T WITHDRAWALSMy 401k and IRA were both managed by Fidelity. I rolled my 401k into my IRA on Sept 2, one day after my retirement date.(Sept,1) Hope this helps in following up on my earlier question. Thanks for all the help.Colonel2008-09-21 08:31, By: COLONEL, IP: [68.211.9.176]

L2: BALANCE DATE ON STARTING 72T WITHDRAWALSMerely use a balance that represents the balance as of the date of the first distribution and you should not have any problems. Use an account balance that has no “reasonable” relationship to the true balance on the date when payments are calculated and you do so at your own risk – just be prepared to justify your assumptions and your starting balance. 2008-09-21 08:44, By: Gfw, IP: [216.80.125.206]

L2: BALANCE DATE ON STARTING 72T WITHDRAWALSColonel,Well, it is fortunate that Ken sniffed out the possibility that you were contemplating using a prior 401k balance, since he was right. Obviously, the value of this account since year end 07 has probably taken a real hit, at least for the equity portion. But you are stuck with the IRA balance as gfw indicated, and should also be sure that you have the ENTIRE transfer done with no trailing distributions. You could insure that better by taking your first 72t distribution later in October, and still can use the recent up tick in interest rates. With the market volatility, that presents more days to possibly raise the available account balance you select. In addition, since you added the 401k to an existing TIRA account, that”s yet another reason why you could not go back. I think that perhaps Fidelity did not understand all the details in your situation to have given you that incorrect advice. Then again, many CSRs are not very familiar with the 72t parameters.2008-09-21 17:14, By: Alan S., IP: [24.116.165.60]