Changing from monthly distributions to a one time minuminum Distribution
L1: Changing from monthly distributions to a one time minuminum DistributionI am 58 years old and have been taking distribrutions from my account since 2001. I would now like to change to RMD which I know I have to take until I’m 59 1/2 . What calculation should I use so that I do not have to go back and pay the penalty?2010-12-04 00:59, By: D, IP: [188.8.131.52]
L2: Changing from monthly distributions to a one time minuminum DistributionStart the switch in 2011. Merely use the balance in your account as of 12/31 (save the statement) and calculate it according to the tables in IRS Publication 590or use our calculator. When using the Minimum distribution method, interest isn’t a factor… only age and balance are used in the calculation.2010-12-04 01:21, By: Gfw, IP: [184.108.40.206]
L3: Changing from monthly distributions to a one time minuminum DistributionSome considerations when electing use of the MD method:
1) You can use either of the 3 tables and cannot change the table for the duration of your plan unless done to conform withcertain beneficiary changes on the IRA agreement itself.
2) In Pub 590, the uniform table starts at age 70 because the Pub 590 appendix only addresses actual RMD needs and there is no need to show younger ages. BUT there is a Uniform Table published in the Appendix to RR 2002-62 for all ages, but that Appendix is not included with RR 2002-62 on this site, but IS presumably reflected in the calculators here.
3) That uniform table produces the same divisor as thejoint life and last divisor table in Pub 590 ONLY when the beneficiary is exactly 10 years younger than the IRA owner.
4) Table options listed in the order that produces the HIGHEST MD method distribution to the lowest:
>>>>> Single Life Table (this one is in Pub 590)
>>>> Joint life whenbeneficiary is not more than 10 years younger than IRA owner. The older the beneficiary is, the closer the result is to the single life table
>>>> Uniform Table (treats all beneficiaries as 10 years younger)
>>>> Joint life when beneficiary MORE THAN 10 years younger
Therefore, if you first calculate using the single life table but you want even a lower distribution, move into the joint life tables. The younger your actual beneficiary as of Jan 1 on the IRA, the lower your distribution will be. If your beneficiary is the same age as youtry the joint life table, and if you still want the annual distribution to be lower, then go to the uniform table. The lowest possible result occurs if your beneficiary is more than 10 years younger and you use the joint life table.
You can change beneficiaries on the IRA IF you want to affect your distribution, but if you expire be warned that the beneficiary you name will inherit the account, so this can be risky. If you have multiple beneficiaries, you must use the age of the oldest of them. Finally, when you make the one time switch, you are not limited to the (individual vrs joint) option you took for the former fixed dollar calculation. If you want to reduce your distribution the most, you will probably be changing from an individual based fixed dollar calculation to a joint MD calculation.2010-12-04 20:08, By: Alan S., IP: [220.127.116.11]
L4: Changing from monthly distributions to a one time minuminum DistributionAll of the life expectancy tables are built into the calculator. All are based on what Icall the Annuity 2003 Mortality Table which which was published in Rev. Rul. 2002-62.
While joint calculations(or the Uniform Table) are frequently used in a SEPP plan, each has its place. The Uniform Table is nothing more than the Joint Table with a beneficiary 10 years younger.
If joint calculations are selected, the calculators will automatically use the Uniform Table if the beneficiary is less than 10 years younger than teh owner.2010-12-04 20:27, By: Gfw, IP: [18.104.22.168]
L5: Changing from monthly distributions to a one time minuminum DistributionGordon,
Then the participant that chooses to use the joint table cannot use the calculator, since the calculator effectively chooses the uniform table for him?
The participant doing the one time switch obviously wants to reduce distributions, and the single table would produce the highest distribution of the 3 options, ie the lowest amount of reduction from the fixed dollar method. Participant could generate a lower distribution using the uniform table than the single table. But if the uniform table produced TOO large a reduction in payments and participant wanted the distribution to fall between the single and the uniform table and had a beneficiary that was around the same age or older than the participant, he would apparently not be able to use the calculator.
Although we advise against it, these circumstances would also affect a new 72t plan where the participant insisted on using the MD method.
2010-12-06 00:45, By: Alan S., IP: [22.214.171.124]
L6: Changing from monthly distributions to a one time minuminum DistributionAlan… Good point, but on a new plan, the person would be crazy not to just divide the IRA, use the amortization method and use the fewest dollars in the SEPP plan (reverse calculator)and still have the ability to select the MD method at a later date.
In terms of making the switch and wanting to pick something in between, all they have to do is go to the IRS tables in Publication 590.
It is always possible to find things that can’t be done, but we dohandle about99% of what needs to be done – not bad for a free and accurate web calculator.2010-12-06 00:57, By: Gfw, IP: [126.96.36.199]
L7: Changing from monthly distributions to a one time minuminum DistributionAlan… As a follow-up, the software that we sell – IRA Tools – allows the selection of the Uniform table as well as defined joint calculations. We just don’t have that option on the web on the web calculator.2010-12-06 01:16, By: Gfw, IP: [188.8.131.52]
L5: Changing from monthly distributions to a one time minuminum DistributionIf joint calculations are selected, the calculators will automatically use the Uniform Table if the beneficiary is less than 10 years younger than teh owner.
Was this a mis-statement? In using the “SEPP Distributions” calculator today, I selected the “Minimum Distribution” method and “Use Joint Calculations”. It appears to me that the calculator uses the “Joint and Last Survivor” Table from 1.401(a)(9)-9. Life expectancy and distribution period tables when the beneficiary is less than 10 years younger than the owner.2010-12-06 09:06, By: MikeP, IP: [184.108.40.206]
L6: Changing from monthly distributions to a one time minuminum DistributionMike… you were right. Here is the text from our help file at the top of the page…
Use Joint Calculations: Enter either YES or NO to use joint life expectancy calclations. To use the Uniform Table merely set the beneficiary’s age to the Owner’s age minus 10. Joint calculations are seldom useful as they will always generate a lower annual distribution.
To use the uniform table, the beneficiary age has to be set manually. Maybe if I get time I’ll add an input item for the unifor table. Our desktop version autiomatically does the adjustment and I was thinking of that program2010-12-06 10:32, By: Gfw, IP: [220.127.116.11]
L6: Changing from monthly distributions to a one time minuminum DistributionThe calculator has been modified to allow use of either Joint calculations or calculations based on the Uniform Table. Additional explanation can be found in the Help window.2010-12-06 11:22, By: Gfw, IP: [18.104.22.168]
L3: Changing from monthly distributions to a one time minuminum DistributionI have a client that is also looking to use the one time method of calculation change to start January 2011. He was originally calculated using the amortization method and now wants to change to the minimim distribution method to lower the amount he is taking. His plan currently pays out monthly. The termination date of the SEPP will be 10/16/2011 when he turns 59 1/2. He’s been on the plan since 10/1/2003. When we make the change thisJanuary is it correct that the info that should be used is the 12/31/2010 account balance, his and his beneficiary’s age as of 12/31/2011 and the interest rate doesn’t come into playat all? Is he able to continue to receive his payments monthly andjust want to confirm that he would not need to be recalculated in 2012 as the plan still falls under the original termination date and the amount he’s taking does not matter after that. Thanksin advance for any information.2010-12-15 17:56, By: pat, IP: [22.214.171.124]
L4: Changing from monthly distributions to a one time minuminum DistributionThe original modification date does not change as a result of the one time switch. But since 2011 is the final stub year of the plan and the 5 years of distributions as a minimum have been satisfied, client does not have to take out anything in 2011. Or client could distribute 9 months worth (75% of annual).
Whatever the properly calculated distribution turns out to be, it can be distributed over any pattern desired between January and 10/16. Also, note that the client has a choice of tables if he chooses the one time switch, and is not bound by whether individual or joint calcs were used for the amortization calculation. So there is considerable flexibility between various approved 72t options for 2011, but again if client does not need funds prior to 10/16, he does not have to distribute anything or make the switch.2010-12-15 21:23, By: Alan S., IP: [126.96.36.199]
L5: Changing from monthly distributions to a one time minuminum DistributionThanks for the info Alan, I thought the client still had to take a distribution from his account until he turns 59 1/2 in October 2011 regardless of the method used as he wouldwouldstill bebound to
Rule 72t distribution (SEPP) that needs to be taken for at least 5 years or until 59 1/2 whichever is longer. Thanks again.2010-12-15 21:53, By: pat, IP: [188.8.131.52]
L6: Changing from monthly distributions to a one time minuminum DistributionAssuming the 5 year requirement is met, then in the final year the owner can take all, none or a pro-rata amount. The exception would be someone who turns age 59.5 on 12/31.
Since SEPP plans are based on an annual distribution – taken anytime during theyear – the owner merely waits – at age59.5 the plan ends – even if the final distribution hasn’t been made. 2010-12-15 22:13, By: Gfw, IP: [184.108.40.206]