Calendar year?

L1: Calender year?Thanks for your time, this site has been very helpful. My client has 2million is his IRA and wants to take distributions. He has a need of $110K per year. We are planning to split his IRA and create a new one with an amount such that the calculation will net something close to the $110K with some leeway for market fluctuations.
Question1. Is this OK to do?
The IRS didn”t gove me a straight answer to this one. My clients income this year will be 15 to 20K. Can we begin the distibution in Oc 2007 for a quarter of the $110K. Take $27K this year thus keeping him in a lower tax bracket. Then continue with $27K quarterly payments throughout the five year period. Or, is the distribution based on the calender year?More clearly,am able to take 27K this year then 110K for four years and 83K in the last?
If this is possible, then could I take $40K this year, $70K through Q3 ”08, and then back to $27K quarterly thus maximizing the tax benefit of his low income this year?

2007-09-07 10:13, By: Charlie, IP: [70.154.66.171]

L2: Calender year?Charlie,
1) Yes, this is OK and recommended. Generally, partition the IRA before the month the SEP begins to develop the account balance to generate the desired distribution. Using the highest permissible interest rate and single life expectancy will enable you to set up the SEPP using the lowest account balance. Other IRA accounts can be held in reserve for emergencies, etc.
For a plan starting in October, the choices are 25% of the indicated annual amount or the full annual amount. You cannot use some number in between such as 40k, but if the current years taxable income is expected to be far below the coming years, you could so something like setting up the plan for 100k annual amounts and then take the full amount this year. The result is an extra 60k this year, but 10k less each year of the remaining term. Of course, this year”s distribution should be invested in a tax efficient manner that will also be liquid since the client will have to tap those assets inlater years when the 100k becomes inadequate.
Of course, in the original scenario of 110k annual, starting in October client could take 27.5 for this year”s distribution and continue that quarterly amount each quarter through the modification date of the plan, which is 5 years from the date of the first distribution or age 59.5, whichever is longer. In the interim full calendar year”s it does not matter how the payments arescheduled as long as they total exactly 110k.
2007-09-07 12:41, By: Alan S., IP: [24.116.165.60]