Changing to RMD method under REV. Rul. 2002-62

L1: Changing to RMD method under REV. Rul. 2002-62I have a client who has been taking substantially equal payments from his company sponsored 401(k) since he early retired at age 57. He has not yet modfied the payment to RMD. His payments were orignally calculated prior to the 3 year stock market bust. So his payments are substanially higher today than when recalculated using RMD.
I want to advise the client that is the correct thing to do.
1. If he does a direct trustee to trustee transfer of the 401(k) into a rollover IRA account and combines the funds with other IRA assets, will he now be required to take a higher RMD for the remaining 5 year period? He turns 59 1/2 in 2003, but must continue to take minimum payments until 2005.
2. Is there any way prior to the end of this calandar year to do the recalculation so he can avoid recieving his total annual payment (being paid in monthly installments)?
Bill2003-12-05 08:01, By: Bill, IP: [127.0.0.1]

L2: Changing to RMD method under REV. Rul. 2002-62Hello Bill:
For starters, rolling the 401(k) assets into a rollover IRA is certainly doable, but not necessarily advisable. If your client terminated employment at age 55 or even turned 55 in the same year as he terminated employment & the funds stayed in the 401(k) plan; he didn”t need to create a SEPP plan in the first place. He could have used, and can still use the “Separation of Service At Age 55 Rule” (See IRC 72(t)(2)(A)(v)) in which he is permitted to withdraw whatever amounts he so chooses bypassing the SEPP rules (found in IRC 72(t)(2)(A)(iv)). In short, he can just stop distributions without penalty.
The above aside, combining the 401(k) assets with other IRA assets at this point would be a violation of Rev. Rule 2002-62 as an improper “addition to the account balance”. Therefore, don”t do it.
Regards, putting money back in the account is a little tougher. Certainly he put back anything he has received in the last 60 days using the rollover rule (IRC 408d)). Beyond that would require getting a Waiver to the 60 day rollover rule which would not be impossible, just questionable at this point.
TheBadger
wjstecker@wispertel.net

2003-12-05 08:14, By: TheBadger, IP: [127.0.0.1]