How to inform of IRS of change in SEPP formulate calculation
L1: How to inform of IRS of change in SEPP formulate calculationHi again.
I have been taking a 72t distribution from my IRA for two years now. I used the amortization method to determine the amount.
I recall reading somewhere on this forum that I am allowed a one-time change in the method of payment calculation. I’d like to revert to the RMD calculation method to take subsequent SEPPs.
Am I correct that I can change the method mid-stream with my 72t plan? If so, what beginning balance do I use to determine the calculation and what life-expectancy? Should I use the original EOY balance when I startedmy 72t planand my original age (51) ordo I use this year’s EOY balance (i.e., 31 Dec) and my current age (53)?
Lastly, how do I inform the IRS that I changed the calculation on them with my tax return? Do I simply explain what I did on form 5239 oris there some other form or notification process thatI need to execute come tax time?
Appreciate your wisdom again on this matter. Previous advice and guidance has been spot-on, so thanks much!
Mike in Ohio2017-08-20 19:20, By: mcopley, IP: [220.127.116.11]
L2: How to inform of IRS of change in SEPP formulate calculationYou can make the change , but you do not need to tell the IRS. Just keep good records.
I’m guessing that you want to make the change as of 2018. If that is correct, you could use the account balance as of 12/31/2017. In your calculation, you would use the life expectancy factor for your attained age as of 12/31/2018.
Then each year that follows you would recalculate the annual distribution each year going forward using ’12/31/previous year’ and your attained age in the current year.
Hope this helps.2017-08-21 14:39, By: Gfw, IP: [18.104.22.168]
L3: How to inform of IRS of change in SEPP formulate calculationKeep in mind that doing the one time switch when you still have 6-7 years left for your plan is a critical decision. Usually, this switch will reduce your annual distribution very roughly 35%, although if you have a high allocation to equities in your IRA, the gains over the last 2 years will have increased your account balance, so your calculation reduction could well be less than 30%. With 7 years to go, you will have to leave some flexibility for emergencies and other changes in your financial picture, so be careful not to reduce your calculation too much.
In that regard, you do have flexibility. When you switch to RMD, you have a choice between the Uniform Table and the single life table. While I would avoid it, you can also use Table II (joint and survivor) but would not try it if you are single. The Uniform Table will result in a lower calculation than the single life table, so you can use this choice to fine tune your distribution keeping in mind that you must stick to your choice of tables for 7 years and can never go back to one of the fixed dollar methods. The IRS infers that you can make the one time change mid year if you want, but I think that is inviting trouble so you should stick with a 1/1/2018 effective date for the change.
You will be making a new calculation each year, that is 6 or so new calculations and the IRS is accustomed to seeing an identical 1099R for each year of the SEPP. Since the one time switch make attract IRS attention, you must be particularly careful with each year’s calculation since the IRS could ask for the calculation in any of these years as you will be filing a 5329 claiming the penalty exception each year despite the 1099R distribution changes.2017-08-21 17:41, By: Alan S, IP: [22.214.171.124]