Can I work backwards
L1: Can I work backwards Just a simple generic question: Can I decide how much I want to withdrawal once a year and then figure out the interest rate to be used to get that amount? In other words can I say I want $20k and if it figures out to 0.884% is that ok?2012-07-14 21:26, By: Mike, IP: [188.8.131.52]
L2: Can I work backwards You are allowed to do it that way, but we recommend using the “reverse calculator” on this website to calculate the minimum amount to set aside into the SEPP 72-T. Then you can keep the excess in a separate IRA to use for emergencies, or to set up a 2nd, or even 3rd, SEPP 72-T in the future to increase distributions, if needed at that future date. This helps reduce the possibility of your having to bust your initial SEPP 72-T which would cause the 10% penalty for all cumulative distributions from inception of the SEPP 72-T.2012-07-14 21:39, By: dlzallestaxes, IP: [184.108.40.206]
L3: Can I work backwards I am not sure what you mean by “once a year” with respect to the interest rate. The fixed dollar methods approved for SEPPs require an initial calculation where you can select any rate not more than 120 fed mid term, but that rate remains for the duration of your plan.
However, the IRS has also approved recalculated plans under which you do a recalculation at the same time each successive year updating your age, account balance and permitted interest rate. The language the IRS used in recent PLRs on this subject appear to allow you interest rate flexibility each year. For example, in the first year if you used the full 120 rate, in the second year you could use less than the full rate (never more). This would allow you to vary the rate anywhere between -0- and the 120 mid term in each year.
That said, recalculation will attract more IRS questions and scrutiny and having this rate flexibility may be offset by changes in your account balance and there is no flexibility for your account balance or your age. In theory then, you could adopt a recalc plan and vary the interest rate from year to year, but from an overall perspective I would not advise you to do that if you want to avoid IRS questions.2012-07-15 00:37, By: Alan S., IP: [220.127.116.11]
L4: Can I work backwards Alan… your comment…
The language the IRS used in recent PLRs on this subject appear to allow you interest rate flexibility each year
What PLR are you referring to?2012-07-15 10:33, By: Gfw, IP: [18.104.22.168]
L5: Can I work backwards Gordon,
I was referring to PLRs 2005 51032 and 2005 51033, virtually identical rulings approving recalc as proposed by taxpayer. Taxpayers request relative to interest rate was to each year use a rate that was not more than the 120 midterm rate for either of the two months prior to the month that the recalculation was effective. In these cases it was effective on a CY basis.
Again, this would only apply to recalculated plans.
OP has now indicated that he does not want to recalculate each year, probably a good thing. He appears to want to reduce the 120 mid term rate in the initial year downward to produce a round number annual distribution with no recalc,and that would be allowable.2012-07-15 18:04, By: Alan S., IP: [22.214.171.124]
L6: Can I work backwards Alan… thanks. I have read those before and never actually read it it terms of how it really does read. Here is the wording directly from200616045…
For subsequent years, Taxpayer A will recalculate the annual distribution for each succeeding year based on the IRA X account balance as of ********* of the prior year, determine his life expectancy as of his age in each subsequent year using the single life table contained in section 1.401(a)(9)-9, Q&A-1 of the regulations, and an interest rate that is not more than 120 percent of the federal mid-term rate for either of the two months immediately preceding the month in which the distribution began.
Maybe it is because I also can’t understand why someone would use an interest rate other than the maximum alllowed.2012-07-16 13:53, By: Gfw, IP: [126.96.36.199]
L4: Can I work backwards Alan, I would take 20k out each year (no recalculation). My question pertains to instead of taking my balance and basing my withdrawal on a certain rate, I want to take my balance , decide how much I want and then figure my interest rate to make sure it is below the max. allowed. I read all the time to make sure you take out to the penny. I want to just take a nice round numberlump sum under the max. interest rate and forget having to take down to the penny. The amount taken will not vary during the length of the SEPP.2012-07-15 10:51, By: mike, IP: [188.8.131.52]
L5: Can I work backwards Mike- You need to reread DLZ’s post.
There is no reason to tie up IRA funds in a SEPP if you can isolate the amount that you need to yield a $20k per year withdrawal (into a separate IRA) thus leaving you a 2nd non-SEPP IRA, thenuse a close to the max allowable int rate, based on the first withdrawal date. You can do calcs to get it to a whole dollar amount, by altering the int rate (below max allowed based on date of payment). When I started first SEPP in 2006 using one IRA, I had 3 IRAS. A year later I used 2nd IRA for 2nd SEPP to paynew 2nd home mortgage, and I still had an IRA that I could use for withdrawals, and only penalty on that till 59 1/2.My first SEPP did not end till Iwas 61, and I also was able to take $$ out of 3rd IRA without penalty for 18 months before that first SEPP ended. It gives you more flexibility. You don’t know what the future will bring, and you don’t want to pay penalties on all your $20k withdrawals if you have to take an additional withdrawal from the SEPP IRA before the SEPP ends.2012-07-15 15:32, By: Ken, IP: [184.108.40.206]
L6: Can I work backwards If you give us your date of birth, total in your IRA’s, amount in your 401-K/403-B (if you will be retiring in 2012 or 2013), we can give you examples of what you can/should do. (We already know that you want $ 20,000/yr. )
How much do you want in 2012 ?
If you have a 401-K, is there any company stock in there (eligible for the special NUA tax provision) ?2012-07-15 16:41, By: dlzallestaxes, IP: [220.127.116.11]