Base Principal Amount vs. Account Actual Net Worth

L1: Base Principal Amount vs. Account Actual Net WorthWhen doing a reverse calculation for client, at $18,000 per year, her base principal amount comes to $277,380. Total account balance in IRA is $391,678. We usually create 2nd IRA and jounalize assets to it from original IRAso IRA #2 has correct base principal amount of $277,380 as it will be client’s SEPP-designated account. However, boss says it’s alright to leave the original IRA as it is, and it will be the SEPP-designated accountand not to worry about it having a $391,678 account value. Is he correct?
If so, can she take any “penalizable” (under age 59.5 no exceptions) distributions from that account in case of emergency? Thank you.2005-12-19 13:24, By: kt, IP: [66.166.8.83]

L2: Base Principal Amount vs. Account Actual Net WorthHello kt:
What do you want to do; change Broker / Dealers or tell your boss he’s wrong? Neither is a good choice.
Setting up two IRA’s is the correct method to use. If the whole amount goes into the SEPP universe IRA, then you cannot add or subtract assets from that IRA for any reason, except as part of the normal 72(t) distributions, during the period of the SEPP. Using two IRA’s, one for SEPP and one for emergencies, is the smart way to do it.
Unless your boss has some documentation from the IRS specifically allowing his actions, and it would be really recent documentation to exist, then your boss is just wrong.
Good luck.
Jim2005-12-19 14:13, By: Jim, IP: [70.184.1.35]

L2: Base Principal Amount vs. Account Actual Net WorthThanks for the information. What if we don’t plan on taking out any assets other than her annual payment amount? Does the IRS deem it o.k. then?
-kt2005-12-19 14:20, By: kt, IP: [66.166.8.83]

L2: Base Principal Amount vs. Account Actual Net WorthYour initial post had two scenarios: 1) SEPP Plan IRA taking $18,000 per year using the maximum, 120% MTR, and 2) having an emergency fund IRA.
If you only want 72(t) distributions and you want all assets in one IRA, then it is OK to use less than the 120% Mid-term Rate in your calculations. But as of today, unless there’s a published change in Federal Statute or IRS rules like Pub 590 that I’m unaware of, once you set up the SEPP Plan IRA and take the first distribution, then you are locked into that distribution rate until the client is age 59.5 and distbituions have run for 5 years.
But if you want both a SEPP Plan and an emergency fund, then you need two (2) IRA’s.
Jim2005-12-19 14:34, By: Jim, IP: [70.184.1.35]

L2: Base Principal Amount vs. Account Actual Net WorthOnethought on your last questions:
What if we don”t plan on taking out any assets other than her annual payment amount?
What if you started painting the floor of your office beginning at the only door and concludingwith you standing in a corner across the room? And what if the paint was “quick drying” but it actually took 4 1/2 years to dry? You didn”t “plan” to be stuck standing in the corner but your are caught because the paint isn”t dry, and if you step in it you will be stuck forever.
My point in this little story is that 5 years for a SEPP Plan to run it”s course is a long time of uncertainty. Locking up assetsin one IRA without an escape plan is not good planning when you have the resources to simply create a better plan for your clients.
Jim2005-12-19 14:46, By: Jim, IP: [70.184.1.35]

L2: Base Principal Amount vs. Account Actual Net WorthIn response to Jim’s second reply message: You say scenario #1 was taking $18,000/year using the maximum, 120% MTR.FYI –I don’t know if I was using the “maximum, 120% MTR” as that wan’t my focus.My calculations were based on what client felt she needed each month/year and I then worked backwards (using your reverse calculator) andcame up with the base principal amount, which is much lower that account balance. From there I just wanted to know if it was alright to leave that large of account balance. Your advise and replies all make sense as far as client’s inability to access her money, etc…Basically from what you are saying is that yes, it can beset up that way, but make sure client doesn’ttouch more than $18k per yearuntil shefinishes with her SEPP schedule. Is that correct?
thanks again and happy holidays!
-kt2005-12-19 16:12, By: kt, IP: [66.166.8.83]

L2: Base Principal Amount vs. Account Actual Net WorthIn reality, if the funds are in one IRA, then all the funds in that IRA are allocated to the SEPP – there are no sub-accounts for the SEPP and the OTHER. The real question is if your client only needs to use a portion of the funds to accomplish her objective, why would you deny your client the flexibility of actually dividing the account and increasing her options.
It sounds like if anything goes wrong, or she needs additional funds and needs to bust the SEPP, that you are setting yourself up for potential problems I’ve been in the business I know how much a client can’t remember when money is involved and there seems to be a way out. If you proceed with your plan, have the client sign off to everything, or even better, have your boss Ok the plan in writing for you files.
As the new year starts, just remember_ there is an easy way to do everything and a right way to do something that choice seems to be yours..
Just my thoughts 2005-12-19 16:26, By: Gfw, IP: [172.16.1.72]

L2: Base Principal Amount vs. Account Actual Net WorthKT
If you used the Reverse Calculator on this site and DID NOT change the interest rate that automatically comes up, then you used the 120% MTR for the time of your calculations. That’s how the calculator is set up and from what you wrote it sounded like that’s what you did.
GFW has some very wise comments and I suggest you show them to your boss and y’all work from that.
Jim2005-12-20 09:02, By: Jim, IP: [70.184.1.35]