changing to RMD

L1: changing to RMDIf I have been using an amorization method and wish to switch next year to an RMD method what interest rate range do I use to determine the amount?
Do I use that same rate every year thereafter to determine that years amount?
Do I use December 31 balance of the previous year for the new calculation?2005-10-05 10:32, By: Don, IP: [69.251.152.161]

L2: changing to RMDYou appear to be confusing 2 diferent aspects of the IRS code. There is no such thing as RMD under SEPP 72T regulations. RMD applies only to taxpayers once they reach 70 1/2. nder SEPP 72T regulations you must make withdrawals to the later of 59 1/2 or 5 years of payments. Once you satisfy those requirements, usually in your early 60s at the latest, there is NO RMD until you are 70 1/2. You could take any amount from -0- to all of your IRA. Once you reach 70 1/2, then the calculation is based on the preceding 12/31 balance each year, and “interest rates” are irrelevant. Only your age on your birthday in the given calendar year is used in the calculation to determine the divisor factor, which starts at 26.4 in the year you are 70 1/2 ( about 4%).2005-10-05 10:41, By: dlztaxes, IP: [4.175.9.60]

L2: changing to RMDI still don’t understand? I was under the impression that you can do a one time change to lower your withdrawals. The method is call required min distributions2005-10-05 11:00, By: Don, IP: [69.251.152.161]

L2: changing to RMDYou are thinking of the Minimum Distribution [MD] method. Based on Rev. Rul. 2002-62 you can take advantage of a one time switch in methods and it make the switch easier by waiting until next year.
There is no interest rate used in the MD calculations, just life expectancy and you can find the table in IRS Pub 590. You will need to recalculate the payment each remaining year of the SEPP by dividing the balance as of 12/31 of the previous year with the life expectancy based on you attained age in the calculation year.
You can use the calculators to get an idea of future payments.2005-10-05 11:05, By: Gfw, IP: [172.16.1.72]

L2: changing to RMDThe change you refer to is called “Minimum Distribution” and not “Required Minimum Distribution.” You are not “required” to make distributions until your “Required Beginning Date” which is April 1 of the year after you turn 70 1/2. But if you want to make a one-time change from the Amortization or Annuitization methods to reduce your SEPP distributions, then your use the “Minimum Distribution” method.
Both the MD and RMD methods use the same table for calculations. To find the table for ages before 70, the only place I know to look is Bill Stecker’s book which is available through this site. By the way, his book will also answer a lot of your questions about SEPP and I strongly recommend it.
Jim2005-10-05 11:09, By: Jim, IP: [70.184.1.35]

L2: changing to RMDBUT YOU CAN USE THE “MINIMUM DISTRIBUTION” CALCULATION UNDER THE 2002 REVENUE RULING ONLY IF YOU STARTED YOUR SEPP 72T PRIOR TO 1/1/2003. YOU PROBABLY QUALIFY, BUT A RECENT INQUIRY FROM SOMEONE WHO STARTED IN 2004 CANNOT USE THIS METHOD.2005-10-05 11:10, By: dlztaxes, IP: [4.175.9.60]

L2: changing to RMDGordon:
Is the new Pub 590 for 2005 out yet and does it now go below age 70? All previous tables in 590 didn’t begin until age 70.
Jim2005-10-05 11:11, By: Jim, IP: [70.184.1.35]

L2: changing to RMDSCHEDULED RELEASE DATE FOR PUB 590 IS 11/22/2005.2005-10-05 11:19, By: dlztaxes, IP: [4.175.9.60]

L2: changing to RMDSo if I start the Sepp in 2004 I can’t convert to an MD method in 2006?2005-10-05 12:14, By: Don, IP: [69.251.152.161]

L2: changing to RMDCORRECT. REVENUE RULING 2002-62 permits use of “Minimum Distributions” to reduce withdrawals ONLY for plans in existence prior to 1/1/2003. Sorry.2005-10-05 12:23, By: dlztaxes, IP: [4.175.9.60]

L2: changing to RMDSECTION 2..03 (b) reads_

(b) One-time change to required minimum distribution method. An individual who begins distributions in a year using either the fixed amortization method or the fixed annuitization method may in any subsequent year switch to the required minimum distribution method to determine the payment for the year of the switch and all subsequent years and the change in method will not be treated as a modification within the meaning of 72(t)(4). Once a change is made under this paragraph, the required minimum distribution method must be followed in all subsequent years. Any subsequent change will be a modification for purposes of 72(t)(4).
Rev. Rul. 2002-62 doesn’t state anything about applying only to plans adopted prior to 2003 and I haven’t seen anything that only allows the change in plans adopted prior to 2003.
DlzTaxes Maybe I missed something, but do you have a reference regarding only the 2003 plans are included? 2005-10-05 12:31, By: Gfw, IP: [172.16.1.72]

L2: changing to RMDmy company recently went Ch. 11. I retired early in 2003 and have been drawing via 72t since July of that year. Having read the above, are there any provisions which would allow me to increase my draw ?2005-10-06 06:45, By: Jack, IP: [64.12.116.202]

L2: changing to RMDNo provisions exist to increase an existing SEPP distribution after the plan started. Ifyou have additional funds inan IRA that were not included in the original SEPP, you could consider using those funds.2005-10-06 07:02, By: Gfw, IP: [172.16.1.72]

L2: changing to RMDHelo Jack:
Just clarify, switching to the MD method does cut both ways. Admittedly very rare, if your account balance approximately doubles, one can switch to the MD method and actually realize an increase in the annual distribution.
TheBadger
wjstecker@wispertel.net
2005-10-06 07:55, By: TheBadger, IP: [66.250.23.21]

L2: changing to RMDGo to www.irs.gov
Then in the first “search box” enter “REVENUE RULING 2002-62.
The first reference is FAQs. Question # 5 is “Generally, when are these rules effective?” The answer, “The rules are effective for all payments COMMENCING ON OR AFTER 1/1/2003. However , see Q&A #9 for a transitional rule (which permits plans started before that date to use the new method).” Apparently, my reference mis-interpreted the wording to mean that plans starting after 1/1/2003 could not use it. I apologize for my misleading response.
Interestingly, these FAQs use the term “required minimum distribution”.
FAQ #17 answers another question differently also. “Are the methods in Rev. Ruling 2002-62 the only acceptable methods of meeting section 72(t)(2)(A)(iv) of the code ?” Answer — “NO !!! ANOTHER METHOD MAY BE USED IN A PRIVATE LETTER REQUEST BUT, OF COURSE, IT WOULD BE SUBJECT TO INDIVIDUAL ANALYSIS AND IRS APPROVAL.” ( AND PRIVATE LETTER RULINGS ARE EXPENSIVE TO PROCESS)2005-10-06 17:43, By: dlztaxes, IP: [4.175.9.68]

L2: changing to RMDThanks for the follow-up. It is true, any other method may be used – however, I don’t believe the IRS has ever approved the use of any other method.
There does seem to be a difference in the one time switch to the md method. For plans adopted prior to 1/1/2003 the change can also include a change in mortality table. For changes after 12/31/2002 the mortality table must remain the same. The IRS clarified this point in a BAR Association meeting this last May. I’ll have to see if I can find the link again – I had it just the other day.
2005-10-06 17:50, By: Gfw, IP: [172.16.1.72]

L2: changing to RMDWell, it looks like we have a terminology difference in this discussion, specifically “Required Minimum Distribution” and “Minimum Distribution.”
According to the FAQ posted by dlztaxes and the section of The Code cited by Gfw, it looks like the Service uses “Required Minimum Distribution” to indicate the method one would be changing too when making this change to a normally lower SEPP distribution. I say “normally lower” given the probably very rare situation mentioned by TheBadger. I wish I had the opportunity to pull that one off.
As I see the problem, The Service is using one terminology, “RMD” to mean two different things. True, the RMD methodology is used for calculations in two separate situations. We … that’s us on this board … are trying to use “logic” which is usually foreign to the thinking of The Service. “Mimimum Distribution” more accurately describes the method used to change from either Amortization or Annuitization to the normally lower distribution method. When doing this there is no “required” element. RMD really only occurs at the “Required Beginning Date” (RBD) for someone reaching the time they have to start receiving distributions from retirement plans and Traditional IRA’s. (Bill, notice that I didn’t use “qualified plans” in the last sentence.)
Bottom line as I see it: The Service needs to change their FAQ’s to specify the difference between RMD and MD … not likely. We on the other hand can continue to use common sense and explain the short comings of The Service and just do what’s right.
Have a nice weekend.
Jim2005-10-07 09:23, By: Jim, IP: [70.184.1.35]

L2: changing to RMDI understand your point Jim. However, I always understood the use of RMD in Rev Rul 2002-62 to be used in a comparative sense. For instance if the question is How is the amount calculated۝, the answer would be It is calculated using the RMD method?۝ What is the RMD method? The RMD method is dividing the previous year-end FMV by the applicable factor. Bearing in mind that RMD is not limited to individuals who are of age 70 _ or older, but applies to situations where a minimum amount must be withdrawn_for instance, beneficiaries who are subject to the life expectancy method_and technically, there is a “required element”- right?2005-10-09 02:17, By: Denise Appleby, IP: [68.38.254.240]

L2: changing to RMDBy the way, the tables in rev rul 2002-62 starts at age 10 http://www.irs.gov/pub/irs-drop/rr-02-62.pdf2005-10-09 02:21, By: Denise Appleby, IP: [68.38.254.240]

L2: changing to RMDGood morning Denise:
Your description of the RMD Methodology is right on and very accurately describes how to calculate the minimum distribution amountfor someone making the change to a lower SEPP payout. Thanks for the link to the Rev Rulling 2002-62 table which I have now saved in my documents folder for future use.
My biggest problem with calculating MD / RMD for someone younger than 70 is the lack of easy access to the table for younger ages. Pub 590 is the document most folks will have access too and turn too for this information, but the Uniform Lifetime table for the latest issue only starts at age 70. Granted the correct answer can be found by using the Joint Life and and Last Survivor Expectancy table and using a 10 year differential, like age 50 and 40, but I haven’t found a convenient way to learn this fact in Pub 590. Hopefully when the 2005 version of 590 comes out theyinclude the chart from 2002-62 with ages down to 10.
Thanks for your comments.
Jim2005-10-10 11:19, By: Jim, IP: [70.184.1.35]

L2: changing to RMDJim – You could also merely ask for a minimum distribution on the SEPP calculator – the appropriate factors appear in the table.2005-10-10 11:21, By: Gfw, IP: [172.16.1.72]

L2: changing to RMDHi Gordon. Thanks for the info about the calculators on the site, but I still want Pub 590 to include the expanded Uniform Distribution Table for younger ages. It’s not always convenient to use the computer for the calculations. Also, people like to “see where the numbers come from,” and doing a manual (with calculator) calculation goes a long way to making people feel confident in the answer to the question,”How much will I get?”
Jim2005-10-10 11:33, By: Jim, IP: [70.184.1.35]

L2: changing to RMDYou are a much better mathematician that I am and calculator operator than I am.
The MD option is the simple calculation. Do you also use a hand calculator and a table of factors for the annuity and amortization methods as well? For me that would eb to much probability of error prefer computer generated numbers that I can get and check in advance of a meeting.
2005-10-10 13:31, By: Gfw, IP: [172.16.1.72]

L2: changing to RMDWhen I say I’m doing hand calculations I’m referring to doing RMD calculatons for someone beyond RBD and taking their RMD, or the MD calculation we have been discussing. This is a very simple, straight forward calculation using 12-31-xx values and pulling the divisor from the uniform table, or joint table on those rare occasions it is use. I wouldn’t attempt to do an amortization or annuitization calculation. Also, when a client sees that I can actually do the RMD calculation they are more comfortable when I use the computer to get the same answer, and then I’m in a position to use the computer for the other calculations.
Jim2005-10-10 14:01, By: Jim, IP: [70.184.1.35]