Change from Fixed Amort to RMD method
L1: Change from Fixed Amort to RMD methodI want to change the withdrawals from my traditional IRA from the Fixed Amortization Method to the Required Minimum distribution Method. I have been making the fixed withdrawals once a year.
Istarted the withdrawal at age 45 in 2003 at age 45. The last withdrawal was in December 2008 at age 51. I am now age 52. I am the owner of the IRA and my father is the oldest beneficiary. He will be 80 in November 2009.
I have two concerns:
1.Which of the tables shoud I use to determine life expectancy, Table 1 Single Life, Table 2 Joint life or Table 3 Uniform Life? Table 3 starts at Age 70 so it does not seem applicable to my situation.
2. After I make the change, how long must I continue the withdrawals. I am confused about the application of the 591/2 rule or 5 years which ever is later. Does it apply after the change? How long must I continue the RMDs? Will I be required to make RMDs between my age 591/2 and 701/2.
Any help will be greatly appreciated
2009-07-17 22:26, By: Need Help, IP: [18.104.22.168]
L2: Change from Fixed Amort to RMD method
Use the table that best fits your needs. Most people would probably use the single life table.
Changing to the Minimum Distribution method does not extend or change the plan – it will still end at the later of age 59.5 or 5 years where the start date was the original start date… not the date of the change.
No required distributions between 59.5 and 70.5
2009-07-17 22:40, By: Gfw, IP: [22.214.171.124]
L2: Change from Fixed Amort to RMD methodNeed Help:
Since you have not yet taken any of your2009 Amort withdrawal, you could easily change to RMD method in 2009. Use the calculator on this site, and plug in the age you will attain by 12/31/09 for yourself, and ignore the beneficiary part. It is already July, so I am not sure if you can still use the 12/31/08 IRA balance as your starting point for the calc for 2009 RMD. Most of what I have read refers to a starting balance within the last six months of first payment you will make -in this case, under the new RMD method. Then, don’t worry about either interest rate, as there is no rate used to compute theRMD payment, and the other (Actual Int Rate) is used to estimate how much money you will have left each year after your withdrawal, but it is just a guess because youare supplying the interest rate you think your account might earn. When your press calculate, the results show for all three methods, including RMD. Keep a printout of that page for your records for 2009 RMD. Each year after this you need to do this calc again with newest year end balance as the new IRA balance figureto compute the next year’s and add one to the age. Any SEPP has to run until at least 59 1/2, and also a minimum of five years, so in your case, you have you will just continue trekking along until you pass age 59 1/2.(I have a SEPP I started when 56, so it has to run untilI am 61 and have taken 5 years worth of payments to meet both requirements.) After 59 1/2 you can stop taking out IRA money until after 70 1/2 when you have to start again, or take anything your want in between without penalty. Just don’t muddy the waters between your last SEPP withdrawal and the first one after turning 59 1/2. Leave a little gap of a month or so. Once you make this change, you cannot go back, so check to see if you can live on the much lower figure it allows before doing anything.
Perhaps others can comment on which IRA balance to use. (It shd also be one you for which you have a statement that can be used to confirm your starting balance IRA number each year if ever questioned.
P.S.- I just saw Gordon’s post (GFW) He is much more succinct!
KEN2009-07-17 22:53, By: Ken, IP: [126.96.36.199]
L3: Change from Fixed Amort to RMD methodProbably more important than the date selected is that what ever date is selected, the balance of that date is a reasonable representation of the true balance when the switch is made.
Rev. Rul. 2002-62 under account balance pretty much says that any date between the previous 12/31 and the current date can be used as long as…
The account balance that is used to determine payments must be determined in a reasonable manner based on the facts and circumstances”2009-07-17 23:18, By: Gfw, IP: [188.8.131.52]
L2: Change from Fixed Amort to RMD methodOK. Here’s my two-cents worth on this deal.
Since “Need Help” takes a single, annual distribution and the last one was December, 2008, then the most logical balance to calculate the RMD for 2009 would be 12/31/2008, since the next distribution in December, 2009 will be based on the RMD methodology. Future calculations would likewise be based on the 12/31/20XX balance. Ken has given the logic for how to make the calculations using the Uniform Table.
Now here’s what really concerns me about this situation:
“I am the owner of the IRA and my father is the oldest beneficiary. He will be 80 in November 2009.”
Unfortunately one of the biggest mistakes people make with IRA’s, 401(k)’s, life insurance and any other instrument with a “beneficiary disignation” is how they name the beneficiaries. From your two sentences above I suspect you have a “beneficiary time-bomb” waiting to explode and you don’t know it. I can think of too many reasons to enumerate why your 79-year old Father should not be listed as your beneficiary. My guess is that you are listed as his beneficiary on his IRA’s, life insurance, etc. And if he is “the oldest beneficiary” then I suspect you have multiple, non-spouse beneficiaries listed which is a separate and more complicatingproblem.
Beneficiary designation is a problem. It is easy to fix before a claim occurs when someone dies. Please get with a qualified financial advisor in your area to review all of your and probably your Father’s beneficiary designations and get this mess cleaned up.
Jim2009-07-20 14:23, By: Jim, IP: [184.108.40.206]