Changing from annuitization to min distribution me
L1: Changing from annuitization to min distribution meAccount is running low and I don”t need the same income as when I established my 72t in July 2007, thanks to full-time work that I”ve undertaken.I understand that I can switch from annuitization to mid dist method at the end of the year, to begin the new, lower distribution Jan ”09. I understand that I cannot make the switch now but must wait until ”09.
Here”s my question: will the new payment be based on cutting my existing payment, as received now ($2,800 gross per month) in half–to $1,400? Or, will it be based on my Dec. 31st, ”08 account value?2008-07-23 09:48, By: Ryan, IP: [184.108.40.206]
L2: Changing from annuitization to min distribution meRyan,
Chances are you can probably make the switch to the RMD method effective 1/1/08 because you either have not yet taken out the RMD amount OR you are over the amount by so little that you could roll the excess back into the IRA within 60 days of the last distribution. This would enable you to avoid taking out 2800 per month right through December.
Another possibility to consider if you do not need ANY IRA distributions is to bust the plan rather than continue to take distributions that added to your salary may place you in a higher tax bracket. If you bust the plan you will owe 10% on your distributions since 7/07 plus a relatively small interest charge on the 2007 share of the penalty. If you bust the plan, you can always start another one if you lose the current job. This decision would involve a tax bracket estimate including state taxes weighing the security of your current job vrs the prospect of having to take extra distributions you don”t need for many years. You may be able to offset the tax impact by socking away the max in any 401k plan you have, that could largely offset the tax on the RMD method distribution.
Hedging these bets is another option. Under that approach you could make the one time switch now to RMD effective 2008, take out very little more, and defer your distribution in 2009 until later in the year when you can reassess your situation. That”s more than 12 months away and you will not have taken any more out than you already have. This would not expose any more dollars (except minor interest) in the event you opt to bust the plan.
If you wait until 2009 to make the one time switch, you would use the 12/31/08 IRA balance, which would reduce the RMD figure further if current market losses continue or there is no recovery by year end. That”s because your year end 08 balance may be considerably below your year end 07 balance.If you actually mean you account is running low in absolute terms since you started the plan, eg by having heavy exposure to financial stocks, then the above paragraph will warrant consideration.
2008-07-23 14:45, By: Alan S., IP: [220.127.116.11]