Changing withdrawal per Private Letter Rulings

L1: Changing withdrawal per Private Letter RulingsI”ve been taking a 72(t) withdrawal for three years, based on my then-IRA balance as of Dec. 31 and based on the then-interest rate. It is the same amount every year (per the annuity method).
Since then, there have been a series of Private Letter Rulings (which I learned of at this site) unanimously allowing an ANNUAL recalculation based on Dec. 31 of the most recent year”s end, new interest calculation, and new life expectancy.
Should I still get my own PLR (don”t they cost, like, $675 plus the work?), or do you think that the “state of the law” is that this is a safe method? Do you think there is a problem that I”m already 3 years into my withdrawals?
Thanks in advance. Really a great site to have come across…
2007-05-19 19:31, By: Jerry, IP: [68.13.1.58]

L2: Changing withdrawal per Private Letter RulingsMy impression is that there is indeed a problem in attempting to switch to a recalc methodology when the 72t plan did not originally incorporate that method. I did not look at all of the PLRs, but the ones I did only addressed the taxpayer”s desire to start the recalc with the initial year of 72t distributions.
I think your PLR would be much in excess of $675, closer to $10,000 to pursue a ruling on a mid term change to recalc, and based on the cost and precedent setting nature of your request, I would not advise you to pursue it.
If you were about to start the 72t plan from scratch, then I believe you could recalc the appropriate variables without seeking your own PLR, since there have been about 8 of these posted on this site. Unfortunately, you are now 3 years into the plan. Apparently, you are seeking an increased distribution. If you have another retirement account that is not part of your current plan, you could initiate a second independent 72t with all or a portion of those funds.2007-05-19 21:16, By: Alan S., IP: [24.116.66.98]

L2: Changing withdrawal per Private Letter RulingsThanks for your input–disappointing news though it was. Although I don”t see any logic to the IRS makinga distinction for 3-year-old plans–I suspect that they would, nonetheless. I”m not following the $10,000 cost, though–I”m an attorney and would probably just write the letter myself. It”s my understanding, that there is a $675 “filing fee”.
You”re talking about $10,000 if I hired someone to litigate, I assume–which I wouldn”t.
2007-05-20 06:56, By: Jerry, IP: [68.13.1.58]

L2: Changing withdrawal per Private Letter RulingsJerry…. Re-check your PLR cost estimates. In order to reduce the number of PLRs on this subject, the cost was increased well beyond the dollars you mention.
SEPP stands for ”Substantially Equal Periodic Payments”- the IRS position is very simply that all factors must be part of the initial plan design in order to have Substantially Equal Periodic Payments.
You can always file for a PLR, but odds are definitely against your receiving a favorable determination.2007-05-20 07:08, By: Gfw, IP: [24.148.85.129]

L2: Changing withdrawal per Private Letter RulingsHello Jerry:
The IRS”s perspective is that either (1) the amount distributed must be the same for all years in the distribution (“SEPP”) plan (and this is typically the case in an amortization plan calculated once) or (2) the methodology used to determine the distribution is consistent/the same and performed once per year — thus the annually recalculated plans and subsequently performed for all suceeding years.
In your case, I think, your 1st three years look like (1) above and you would like to switch to (2) above. That creates a “methodological” switch or inconsistency between the years which the IRS is about to rule adversely upon (at least based on a conversation I had with another potential client).
Thus, the IRS”s stance is actually logical & consistent even though we might not like it.
Regarding PLR costs, in early 2006, the IRS issued Rev. Proc 2006-8 which enumerates all of the filing fees to be paid to the IRS in order for them to consider a ruling request. Requests on IRC 72(t) now cost $9,000 to which you need to add either your own labor time or the costs of paying some other professional to prepare the request which is usually $3,000 and up.
TheBadger
wjstecker@wispertel.net

2007-05-20 07:29, By: TheBadger, IP: [72.42.66.115]

L2: Changing withdrawal per Private Letter RulingsHello Jerry:
As a follow-up, go take a look at PLR 2007-16032 issued on 1/23/07. This seems to be pretty close to on point and the Service ruled adversely.
TheBadger
wjstecker@wispertel.net
2007-05-20 07:41, By: TheBadger, IP: [72.42.66.115]

L2: Changing withdrawal per Private Letter RulingsThanks so much for the advice, everyone.
My IRA has doubled in the last 3 yearsso yeah–I was going to tryto take out pretty much double what I started at. I guess the IRS wouldn”t have liked that. Wish I had it to do over again–but at the time, the state of the law was a lot more unclear.
This is a GREAT site, and I wish I had come across it earlier–would have saved me a lot of time and research.
Thanks again!
Jerry
www.jerrypettit.com/blog

2007-05-20 08:10, By: Jerry, IP: [24.148.85.129]

L2: Changing withdrawal per Private Letter RulingsJerry – I have edited your message and removed the reference to the web site where you have your IRA. We are a site that deals with 72(t) and not investments.2007-05-20 08:25, By: Gfw, IP: [24.148.85.129]

L2: Changing withdrawal per Private Letter RulingsJerry,
If your IRA balance has actually doubled, you could probably increase your distribution somewhat by using the one time switch to the RMD method. While that is typically used to reduce distributions because it yields considerably less than the annuity or amortization method, if your balance has increased to the degree you indicate, it would increase your allowed distribution. You could probably execute that using your 12/31/06 balance unless you have already taken out more than the indicated amount under RMD for 2007 and there is not enough 60 day rollback capacity for the excess.
But remember, since you are probably heavy in equities, if the market has a large correction (ala 5 years ago), a couple years down the road, the balance reduction coupled with the RMD method could result in a sharp reduction in the 72t payment, perhaps even below what you are getting now. Of course, you could do the one time switch and re align your investments into more stable value assets such as govt bonds, money market funds etc).
2007-05-20 20:40, By: Alan S., IP: [24.116.66.98]

L2: Changing withdrawal per Private Letter RulingsThanks for the suggestion, but I had already checked on that and changing the method wouldn”t help–the amount you can take outusing the “fixed annuity” method was so much higher.
My apologies for posting the link to my website regarding my investments (which is NOT a commercial site–just a hobby/blog site) and your need to edit it out. I understand completely–it sets a precedent that some might abuse.
Thanks again for all the help.
Jerry

2007-05-20 20:48, By: Jerry, IP: [68.13.1.58]

L2: Changing withdrawal per Private Letter RulingsAnother option which might be considereddepending on how bad you want to switch is to bust the plan and start a new one with the adjustment features built in. With my potential numbers, at year 3, there would be a 2% penality for switching.
good luck
job2007-05-24 12:24, By: obryanjf, IP: [75.204.16.134]

L2: Changing withdrawal per Private Letter RulingsI”m not familiar with the concept of “bust a plan” and figuring this 2% penalty.Where can I find info on this?2007-05-24 14:05, By: Jerry, IP: [24.15.184.78]