Changing from annual to monthly distribution
L1: Changing from annual to monthly distributionHello: I started taking SEPP in September of this year. When I enrolled I requested a lump sum for the year. I was given that. I then subsequently changed the request to begin monthly payments effective January 15, 2011. Here’s what I learned. When I first enrolled I used the calculator on this site. I was eligible to use the 2.83 percentage since I was getting my first payout in September. Per the calculator a person with an IRA worth $818000 was entitled to a payment of $40,395 taking the 2.83 rate. When I contacted my custodian, I was advised that the calculator was simply a tool to provide an estimate. The actual amount due me would be $38,890.37. I accepted that answer but after speaking with them today, I think I made a mistake. When I asked to change my payments from annual to monthly, I was advised that dividing $38,890.37 into 12 months does not render a whole number. The actual number would be $3240.8641 per month. So I asked that they pay out $3240.86 for 11 months and on the 12 month, which would be December send me a payment of 3240.87 which would total $38, 890.37. My custodian said that they could not do that because once they change the monthly payment of $3240.86 to $3240.87 it would generate a red flag to the IRS and I would be penalized even though the total of the payments would equal what I was paid in 2010. That makes absolutely no sense to me. I thought that all the IRS cared about was that the year’s sum were equal. It would not matter if I got payments monthly, semi annually or annually. Am I wrong?2010-12-17 23:12, By: Rosa, IP: [220.127.116.11]
L2: Changing from annual to monthly distributionIf you were age 54as of 12/31/2010 and the interest rate was 2.83%, then the annual distribution should have been $40,394.60. The annual amount divided by 12 would have been $3,366.22. $3,366.12 times 12 equals 40,394.64 or a variance of 4 cents. Generally any variance of 50 cents or less would be considered ok.
Based on the above, I have no idea where the payment of $38,890.37 came from or how it was derived. And you are right, the IRS only cares about the annual amount – whether or not the periodic distributions during the year are equal makes no difference as long as the annual amount is distributed.
How was the payment determined?
What interest rate did they use?
Were you age 54 as of 12/31/2010?
Did you have exactly $818,000 in you IRA?2010-12-17 23:49, By: Gfw, IP: [18.104.22.168]
L3: Changing from annual to monthly distributionPerhaps the annual calculation discrepancy was due to the custodian using the joint table rather than individual. But your beneficiary would have had to be older than you are to get numbers in the 38k area. If your beneficiary is older, that might be a clue as to how they came up with that number.2010-12-18 01:21, By: Alan S., IP: [22.214.171.124]
L4: Changing from annual to monthly distributionThank you for your quick response and Yes, on both accounts. I was 54 at the time of calculation. I will be 55 Feb of 2011. My husband is 59 will turn 60 May 2011. I asked that they not use the joint calculations as, based on what I read on this forum, I had the option of choosing joint or single without penalty.2010-12-18 15:23, By: Rosa, IP: [126.96.36.199]
L5: Changing from annual to monthly distributionUsing a beneficiary age of 59 and joint calculations I still can’t come up with their annual payment.
Did they give/send you any documentation as to how they calculated the payment?Anything in writing with their company’s name, etc?2010-12-18 15:32, By: Gfw, IP: [188.8.131.52]
L6: Changing from annual to monthly distributionNo, they did not provide anything in writing other than they received my request to begin distributions. But after yesterday’s disturbing call, I will be asking for something in writing..2010-12-18 15:35, By: rosa, IP: [184.108.40.206]
L7: Changing from annual to monthly distributionOnce you are sure that you are right and they are wrong, please tell us which company it is so that we can be forewarned if we, or any clients, relatives, or friends are dealing with the same company.2010-12-18 23:15, By: dlzallestaxes, IP: [220.127.116.11]