changing 72t payout schedule
L1: changing 72t payout scheduleI have a 72t that”s set up to payout yearly. I was going to change that to monthly since it shouldn”t matter when but how much comes out. Fedility however says they cannot do that because the interst rate used is different for monthly as opposed to yearly. Is this correct or do they just not know much about 72t”s?2008-03-13 10:51, By: Gil, IP: [18.104.22.168]
L2: changing 72t payout scheduleGil,
Check out Gordon”s (GFW) reply to a similar question from JOHN, dated 11/28/2006. To get to it quickly, first change the “# of months viewed” to 18 at top of forum page, and click on SHOW ALL RECORDS, then after screen refreshes (it takes a little time) scroll way down to find it. There are others as well that I found by entering “monthly interest rate” in the SEARCH feature at top right on the forum page, becasue I know I have read several answers to this same question in the past two years..BTW- I just changed my Semi Annual SEPP paymentthru Schwab in Jan 2008 that I had originally computed using the annual interest rate in March 2006, and dividing Annual payoutresult by 2. When I changed it in 2008,I took original (annual) payout answer again, and divided it by 12. (When I set it up, I made sure the annual could be divided by both 2 and by 12 into whole cents resultsso I never had to worry if I switched it.) They had no problem at Schwab, since the newmonthly gross x 12 was equal to the two payments I had been taking in the past two years. KEN2008-03-13 11:55, By: Ken, IP: [22.214.171.124]
L2: changing 72t payout scheduleHello, Gil:
Fidelity”s response to you looks bogus to me. I would try to contact another rep or a supervisor to clarify this. The IRS rules specifically allow payment periods of annual, semi-annual, quarterly, or monthly… and perhaps others as well. The fact that they are periodic and occur within the same year should satisfy all IRS requirements on payment frequency.
Whether the interest rates are different for monthly or any other period seems irrelevant to me. As you and Ken point out, it is the annual amount withdrawn that matters and not how many pieces it is chopped into. The IRS probably does not know how much any SEPP owner receives or when. Unless they do an audit, it is unlikely thatthey will see anything other thanthe annual amount reported onform 1099-R.
This looks to me as if the person to whom you spoke is thinking of something else and not the payout schedule for a 72t SEPP plan. Any interest rate used in that calculation tends to be fixed at the beginning of the SEPP. If you are recalculating each year, that could have some impact on all this and add some confusion. Personally, I do not think that recalculating the amount for a SEPP each year is a wise idea. It adds complication and is just another tripping hazzard along the way. Since interest rates are just as likely to go down as up,any advantagein recalculating looks miniscule while the potential for busting the SEPP is increased. Not a good bet, in my opinion.
Ed2008-03-15 11:33, By: Ed_B, IP: [126.96.36.199]
L2: changing 72t payout scheduleFidelity”s action here is even more ludicrous since they are not “underwriting” the 72t plan by coding the 1099R with the exception code. That makes you claim the exception on Form 5329. I would remind them of that fact, and further offer to send them a hold harmless letter in the event that the IRS busts the plan over the interest rate question. This is probably better than getting into a change of custodian situation, which could raise the risk of a busted plan much more than the interest rate issue of monthly vrs annual.2008-03-15 13:37, By: Alan S., IP: [188.8.131.52]