Change from annual to monthly distribution – again

L1: Change from annual to monthly distribution – againI know this issue has been discussed in the past, but I would like to be sure that I’m not going to have a problem. It has been brought to my attention that my 72t SEPP may have problems because I took an a single annual distibution during the first year of the plan and have started with monthly distributions this year. Here are the details of my plan:

Created plan in 12/2004
Calculated annual payment using the amortization method
Received a 96,000 (full years worth)distribution in 12/2004
In jan. 2005 started to receive monthly distributions of 8,000 (96k/12)
According to a book by Natalie Choate this may be a problem. In a section titled “What changes DO constitute a modification?” she states:
“Probably, changing from annual payments to quarterly or monthly payments (or vice versa), even if the total payments for the year add up to the right amount. There is no authority or precedent for the proposition that the size of individual payments in the series does not matter so long as the annual total is the same each year”
How would one answer this statement that there is no “authority or precedent”? Is there any reason to be concerned? I am getting confilcting advice from different financial advisors. Thanks for the help and the great site.
Jay2005-04-07 16:56, By: Jay, IP: [68.84.248.26]

L2: Change from annual to monthly distribution – againhello Jay:
Have you ever heard the expression: “Not all experts agree”. Well, here is one where Natalie & I disagree. Below is what I posted a couple of months ago on this topic:
Monthly equal periodic payments vs annual
1. In need to weigh in on this issue. There is absolutely no question in my mind that the substantially equal periodic PAYMENT is the annual payment and not the sum of the intra-year payments made, be they monthly / quarterly/ random, etc. My reasoning is as follows:
1. The IRC (as enacted by Congress) says not less frequently than annually۝. This creates what I will call a one-sided or right-sided test; e.g. minimum of one distribution per tax year of the taxpayer. This language requires the IRS to enforce the minimum of one distribution per year۝ rule; they actually have no choice in the matter. In addition, this same language gives the IRS no license or authority to govern or regulate intra-year distributions. Had Congress wanted them to, they would have used different language to cover the issue.
2. If one goes back to the House and Senate minutes of the enactment of IRC 72(t)(2)(A)(iv) there is some discussion about inter-year versus intra-year distributions and it is clear upon reading those minutes that Congress specifically intended a once a year۝ test and affirmatively left the issue of intra-year distributions to the devices of the taxpayer. Said another way, Congress, in an indirect manner, told the IRS to stay out of the intra-year issue.
3. Although not exactly on-point۝, this same issue rears it head in the 401(a)(9) regulations where it is abundantly clear that taxpayers can essentially do whatever they want to do on an intra-year basis in order to satisfy their RMD requirements.
4. The IRS has never directly ruled (and if you think about for a moment; they really can’t) on this issue of intra-year distributions; however, there must be a good dozen or more PLRs that deal with intra-year distributions and everything short of random has been approved; however, typically, the issue of intra-year distributions was presented in the PLR facts; this issue was not the central issue of the ruling.
5. If the IRS thought they had some authority to rule in this area, I suspect strongly that they would have done so long before now by speaking in any number of forums; e.g. revenue procedures, revenue rulings, PLRs, etc. Further, the entire process of reporting distributions, as designed by the IRS, for a taxpayer of any age, is an annual one via the 1099R. The IRS sees none, nor cares to see, any of the intra-year transactions.
6. Last, but not least, one should carefully read IRC 408(d)(2)(B): For purposes of applying 72 to any amount described [above] all distributions during any taxable year shall be treated as one distribution. This kinda says it all.
TheBadgerwjstecker@wispertel.net
2005-04-07 17:29, By: TheBadger, IP: [66.250.23.21]

L2: Change from annual to monthly distribution – againThanks for the quick response. Your reasoning makessense to me. There dosn’t seem to be any logical reason why the IRS should care whether you get an annual or monthly distribution as long as it’s the same for the year. I don’t even know how the IRS could determine your frequency of payments. The 1099-R document only shows the total distribution for the tax year. I guess it’s too much to ask to have the IRS be a little more presice with it’s language. Thanks again.
Jay2005-04-07 17:43, By: Jay, IP: [68.84.248.26]