First modification date
L1: First modification dateWe are setting up a 72t for my wife’s retirement accout (Traditional IRA) her DOB is 2/15/57…….she is 56 and will be 59.5 in about 3.5 years. She plans to take her first distribution in April 2013. I understand the “one time change” the IRS mentions from the amortization method or annuitization method to the minimum distribution method. Your 72t dot net/Calculator/First/Modification/Date says “The first payment modification date is calculated as one day following the later of the end of the 5-year period, or the date you atain age 59.5 – this would be the first possible date to modify (increase, decrease, stop, etc)the planned SEPP payments without busting the plan.” I don’t see mention of increasing,decreasing, or stopping the payments when my wife is 59.5 years old in the IRS information. This sounds different from the 3 methods of calculation that the IRS mentions. Please clarify.
2013-02-25 21:21, By: sombrerosteve, IP: [184.108.40.206]
L2: First modification dateThe first modification date is defined as 1 day after the later of age 59.5 or 5 years. In your case it is 5 years that the plan must run – 365 days * 5 Years + 1 or 2 days.
We don’t bring into play the ability to change methods in the First Modification Date calculator since changing to the Minimum distribution method is only a change of methods.
However, the payments – even if a change to the Minimum Distribution is elected – must continue until the first modification date. Other than changing methods, the payment must not be increased, decreased or stopped or the plan will bust.2013-02-25 21:32, By: Gfw, IP: [220.127.116.11]
L3: First modification dateDo you have an explanation for the quotation I cited abovd from the 72t dot net website? They say at 5 years “or” 59.5 the amoung can change and it sounds to me as though they are saying the amount can be modified other than changing to the RMD method. Confused on this issue. Thx2013-02-25 22:40, By: sombrerosteve, IP: [18.104.22.168]
L4: First modification dateDo I have the quote? Yes, I wrote the text…
The ‘First Payment Modification Date’ is calculated as one day following the later of the end of the 5-year period, or the date you attain age 59.5 – this would be the first possible date to modify (increase, decrease, stop, etc.) the planned SEPP payments without busting the plan.
I don’t understand why you are confused. Please be more specific. Forgetting the one time switch, it is 100% accurate. Changing to the MD method, is a change of methods and will typically always reduce the required distribution, but not the 1st modification date.2013-02-25 22:50, By: Gfw, IP: [22.214.171.124]
L5: First modification dateHe is confused because he does not under the basic regulation about SEPP 72-T plans — You MUST continue to take payments until the LATER OF 5 YEARS OR AGE 59.5.
I normally would try to dissuade anyone from starting after age 54, and also at age 56, unless they had a major need for the money, and could “guarantee” me that they would definitely not need to increase the amount, or have a “one time” emergency for 60 months. Otherwise, they will probably bust the plan, and owe the 10% penalty, in addition to the taxes.2013-02-25 23:03, By: dlzallestaxes, IP: [126.96.36.199]
L5: First modification dateSorry……..I’m not trying to be critical. So if I understand correctly the “one time change” in the method of calculation is “different” than the 1st modification date…..correct? So we would be able to change the amount that she receives when she reaches 59.5 (1st modification date which is sooner than the 5 years) but I don’t see mention of this on the IRS FAQ info page on SEPPs or the IRS instructions for Form 5329 or other internet sources. Thx for the help it is appreciated.2013-02-25 23:04, By: sombrerosteve, IP: [188.8.131.52]
L6: First modification dateYes to your question, they are different.
If all else fails, read Revenue Ruling 2002-62, Section 2.03(b)
Also refer to IRS Publication 590, page 56.2013-02-25 23:11, By: Gfw, IP: [184.108.40.206]
L7: First modification dateSteve- As far as the three methods of calculation are concerned: The AMORT method yields a slightly higher annual payment that Annuity method. (Minimum method yields the lowest payout.) Each of those first two methods AM or AN I mentioned can be changed (ONCE) to the Minimum distribution method after you have started the plan, (Usually done at start of new calendar year) and if you make that change you have to stay with MIN method after that, with annual recalculation.
Since wife is starting after age 54.5, her plan needs to run minimum of 5 years (60 months) before it can be modified. If she started at age 50 it would have to run 9.5 years before she could change it after age 59.5 (I had a typo with 50.5 in original post..just fixed that), so it is not always exactly 5 years, but always at least 5 years.
Ken2013-02-25 23:21, By: Ken, IP: [220.127.116.11]
L6: First modification dateSo we would be able to change the amount that she receives when she reaches 59.5 (1st modification date
You missed a very important word… ‘Later’ of
2013-02-28 23:37, By: gfw, IP: [18.104.22.168]