# Calculating distributions using the required minimum distribution method

L1: Calculating distributions using the required minimum distribution methodI’m starting to look at setting up a SEPP plan and have some confusion over using the required minimum distribution method. If I use this method to calculate the distribution, is it used for the initial setup only and with all distributions from this point and on being equal? Or does the minimum distribution have to be recalculated each year?

Thanks in advance.

Jim2012-11-15 17:50, By: jburton, IP: [70.100.133.43]

L2: Calculating distributions using the required minimum distribution methodGood afternoon Jim:

The Minimum Distribution (MD) Method is recalculated each year based on the year-ending value of your IRA and the age factor from the chart.

This method was created as a “safety net” to the other two calculation methods, ie Amortization and Annuitization, when the stock market collapsed in 2000 and people were taking too much money out of their plans.

The recommended procedure is to determine how much money you will need each year of your plan, then use the Reverse Calculator on this site to determine how much money you need to fund your SEPP Plan IRA usine the Amortization Method. This method is used since it provides the greatest distribution amount for a given size IRA account. Later, while your plan is operating, if you determine that you don’t need as much money per year as you initially projected, then you can make the one-time switch to the MD Method which will reduce your annual distribution.

Review the Planning Pointers on this site for a more detailed discussion.

Jim F2012-11-15 20:33, By: Jim F, IP: [70.184.1.22]

L3: Calculating distributions using the required minimum distribution methodThe important aspects of the use of the REQUIRED MINIMUM DISTRIBUTION approach are that :

1. It is a ONE TIME change.

2. You must be sure that you will not need more funds for each of the remaining years in the SEPP 72-T plan.

3. You must be sure that you will be ok in receiving less each year if the value of the portfolio decreases, because the RMD distributions might decrease also accordingly. ( I say “might decrease” because the divisor for your increasing age will decrease by about .9 to be divided into a decreasing balance, and could result in either higher or lower distributions.)2012-11-15 20:42, By: dlzallestaxes, IP: [71.175.100.168]

L4: Calculating distributions using the required minimum distribution methodJim,

To tie the prior posts together,as Jim F indicated you would not be well served to start your plan using the RMD methodsince it produces a lower distribution per dollar of account balance. Additional pitfalls are that you must make a new calculation every year, which multiplies thechance of error. Also, by starting with the RMD method, you forfeit the flexibility of making the one timeswitch to that method since you are already there.

dlzoutlined the one time switch option should you want to decrease your distribution in the future. For years after the switch you do an annual calculation in the same manner as if you started with that method.2012-11-15 23:02, By: Alan S, IP: [24.116.67.233]

L5: Calculating distributions using the required minimum distribution methodThanks to all for the reponses. Looks like I have alot more reseach to do.

Jim2012-11-16 17:37, By: jburton, IP: [70.100.135.64]