change from annuity method

L1: change from annuity methodHi,
Have a client who is interested in making the switch from the annuity method to the LE method. Annuity withdrawals were started in June of 2000. If she makes the change next month (January 2003) and we are looking to make the max withdrawals under the LE method she should use the new single life table correct, i.e. age 59 = factor of 26.1? Should that factor be reduced by 1 or recalculated each year? If the LE method is used effective January 2003 based on 12/31/02 balance, the account should be revalued on 12/31/03 I am assuming. What if a taxpayer makes the change in June and they are a calendar year taxpayer, should the distributions still run 12 months before recalculated for the next year? Thanks in advance.2002-12-10 15:50, By: Mike, IP: [127.0.0.1]

L2: change from annuity methodHello Mike:

You are asking a variety of questions which I will attempt to answer below:
Have a client who is interested in making the switch from the annuity method to the LE method. Annuity withdrawals were started in June of 2000. If she makes the change next month (January 2003) and we are looking to make the max withdrawals under the LE method she should use the new single life table correct, i.e. age 59 = factor of 26.1?
By “LE” I believe you really mean the new “required minimum distribution” method. Yes, the max under the RMD method for a 59 year old would be to use the single life table and therefore a divisor of 26.1.
Should that factor be reduced by 1 or recalculated each year?
No. Instead, next year you would divide by 25.2.
If the LE method is used effective January 2003 based on 12/31/02 balance, the account should be revalued on 12/31/03 I am assuming.
Yes.
What if a taxpayer makes the change in June and they are a calendar year taxpayer, should the distributions still run 12 months before recalculated for the next year?
I think not; and here we are in an interpretive area. Assume your client decided to switch on 7/1/03. I think she should make 1/2 year”s worth of annuity method distributions sometime between 1/1/03 and 6/30/03. Value the account on 6/30/03, divide by 26.1 and then divide that by 2 to get 1/2 year”s worth & distribute that amount sometime between 7/1/03 and 12/31/03; thus a pure prorata treatment for 2003. Then, value again on 12/31/03; divide by 25.2 and distribute that amount for all of 2004.
Thebadger
wjstecker@wispertel.net
2002-12-10 17:48, By: TheBadger, IP: [127.0.0.1]