Can I change my 72t payment formula?
L1: Can I change my 72t payment formula?
hello again. I’m considering reverting from the amortization SEPP formula to the RMD formula for the remainder of my 72t plan distributions that I started in 2015. I’m 53, born Jul 64. Am I correct that I am allowed to change to the RMD formula once throughout the plan life? If so, how does the IRS know that I changed the formula calculation method when I do my taxes next year? Certainly, they’ll see the decreased distribution amount from previous years. I’d appreciate your wisdom on the finer points of this change in my plan. Thanks again, Mike C
2018-05-23 14:38, By: copleyma, IP: [2600:1700:c541:1490:ed7f:5f0e:a3b6:666c]
L2: Can I change my 72t payment formula?
You would just keep your RMD calculation documentation should the IRS inquire regarding the reduction. There is no actual formal reporting of the calculation change. In the future, you would keep a copy of each RMD calculation and double check these since you will have 5 more calcs so the risk of error is increased. Be sure you can handle the reduction because you cannot go back once you make this change that will reduce your payout substantially.
Note that when you change to RMD you are permitted to use any RMD table, Uniform, Single life, or even joint with the beneficiary named on the account. This choice will affect your distribution amount, but you would probably use single life because it produces the larger payout but still much reduced.
I do NOT recommend doing this change mid year and pro rating your 2018 distribution, however if you have not yet distributed the amount of the RMD calculation for 2018 (using age attained at the end of 2018) you can effectively make the change retroactive to 1/1/2018. If you do this use your account balance on 12/31/2017. In future years always do your calculation using the prior year end balance (as done for actual RMDs), your age at the end of the current year and the same RMD table you choose. You can only change tables when you first adopt RMD, but then must stick with that table until your plan ends.
Again, make sure you will not fall short of your needs anytime in the next 5 plus years. If there is any doubt you might delay the change until 1/1/2019 and save some of this years SEPP that you do not need as insurance from busting the plan in the future.
2018-05-23 22:47, By: Alan S, IP: [22.214.171.124]
L3: Can I change my 72t payment formula?
Thanks so much for the sanity check Alan. It is interesting one is permitted to use one of the three life expectancy tables regardless whether one is single or married, a spouse is 10 years or more apart from the IRA owner’s age. These distinctions i understood were key when calculating an RMD outside a 72t plan per the IRS Pub 590. I had intended on using the Uniform Table for my RMD calculation given I am not single nor is my wife more than 10 years younger than me. It’s nice to know under the 72t RMD calculation method, I have the option to using any of the three tables. I now have the information I need to make an informed decision for my next plan distribution in 2019. Kind Regards, Mike
2018-05-24 01:05, By: copleyma, IP: [2600:1700:c541:1490:ec06:4496:1600:8ad5]
L4: Can I change my 72t payment formula?
Mike — You give the IRS too much credit. I am not aware that IRS tracks SEPP 72-T distributions at all, and therefore does not compare them year to year, nor does it even know if you distribute the correct amount any year. BUT, if a taxpayer doesn’t distribute the correct amount, and gets audited, the penalties are retroactive 10% penalty on all distributions from the beginning because the plan was “busted” when an incorrect amount was distributed.
2018-05-24 01:20, By: dlzallestaxes, IP: [126.96.36.199]