determining initial account balance when setting up 72t
L1: determining initial account balance when setting up 72tI am about to set up a 72t. The funds will be distributed from a new IRA that has just been created within the last month by rolling over a 401k. After running the numbers through the 72t calculators, I determined that I would need to increase the IRA balance to get my desired annual distribution. I will therefore transfer funds from another IRA that I own to create the correct balance. IRS revenue ruling 2002-62 states that the account balance that is used to determine payments must be determined in a reasonable manner based on the facts and circumstances.
Since this is (1) a new IRA and (2) the balance was increased by transfering funds from another IRA, I am trying to determine how to correctly establish the account balance. I want to make sure that I comply with all IRS rules and regulations.
Any suggestions?2011-04-05 05:52, By: Tom, IP: [220.127.116.11]
L2: determining initial account balance when setting up 72tWhen I set up my SEPP in the spring of 2005, I used the date of March 1 as my IRA account starting value. My 1st payment was on 3/15, so that seemed reasonable to me. I would think that the 1st or last day of either of the two months before your 1st payment would be acceptable.
Another date that is acceptable to the IRS is 12/31 of the year prior to your distribution start date. While this is often seen as an official valuation date, if more than about 4-5 months have elapsed since then or there have been major changes in the value of your IRA, a date that is more recent will often better reflect the current account value, so is considered as “reasonable”.
Whichever date you choose to use, make sure that you get a printout of the IRA account or accounts upon which your SEPP is based. Include this in your paper records so that you will have it in case of any IRS inquiries. Make your paper work collection as extensive as possible because one never knows for sure which parts will be needed to answer an IRS inquiry. A 3″ 3-ring binder works well for this and does not take up much space to store. Mine is nearly full but contains virtually every scrap of paper that relates to my 401k closing balance, the calculations I used to create my distribution amount, any written correspondence, all distribution receipts, and all beginning, quarterly, and annual statements from my IRA. I probably saved more than is necessary but I would rather save some things I won’t need than miss some that I do need.2011-04-05 18:02, By: Ed_B, IP: [18.104.22.168]
L3: determining initial account balance when setting up 72tTom:Your approach of transferringsome funds from a non-SEPP IRA account into your SEPP IRA account is the best solution. While you can use two or more separate IRA accounts to form your “SEPP Plan universe,” that really complicates matters. One account for each SEPP Plan is nice and clean.After you complete the transfers into the one, SEPP Plan IRA account, take a “snapshot” of the account by printing out the account balance if you have online access, or use the “end of month” statement to establish the value. Use the value in your single, SEPP Plan IRA account for your calculations and make your first distribution to mark your starting date.Jim2011-04-05 20:10, By: Jim, IP: [22.214.171.124]
L2: determining initial account balance when setting up 72tIn your situation, I would recommend that you transfer the funds you need to generate your required account balance FROM the new rollover IRA TO the older IRA and then use the older IRA for your SEPP account. That way, any trailing dividends or other distributions from the 401k plan that you have not received yet will pop into the new account and NOT into the old IRA that you are using for your SEPP. These trailing dividends can cause major headaches because there can be no additions to your SEPP account once you start your plan.In addition, when you elect your account balance, you cannot go back farther than the date of the last contribution or distribution from that account. Therefore, since you need to do a transfer to get your balance right, you cannot use a date for your balance prior to the date the transfer is completed.When all is done you will have a SEPP IRA and another IRA that can be used for an emergency fund if you need more money. It will save you from taking the money from your SEPP IRA and busting the plan. You could also start a second independent SEPP plan from the emergency IRA at some later date if you discovered that you will need extra money every year.2011-04-05 20:17, By: Alan S., IP: [126.96.36.199]