Incorrect 72t calculations

L1: Incorrect 72t calculationsWhen I use the calculator on this site and input age 51, balance $225,560 and an interest rate of 3.99%, the result is an annual distribution of $12,358.29 using the amortization method.This is the exact same figure I calculate using several other calculators. The problem is that the carrier who has my variable annuity , Western Reserve Life, inputs the same data and comes up with the figure of $11,884.12. Does anyone have any idea what error they might be making. The problem is not with the frequency of payment as the illustration definitely states that distributions are made annually and it also states that they use Ruling 2002-62.
They also showed an annuitization method calculation 0f $12,182.03 and wrote me that ” The annuitization method generally shows a higher amount then the amortization.” I know this is no longer true, but feel that if I could show them exactly where they are going wrong with their calculations, our numbers would agree, they would properly encode my 1099 R’s and it might save me grief down the road.Any ideas would be appreciated.2003-11-12 13:44, By: M/G, IP: [127.0.0.1]

L2: Incorrect 72t calculationsHello B/G:
What we have here is a mathematical failure to communicate. The amortization formula (@pmt in lotus/excel) is the typical calculator function used to amortize a principal amount such as a mortgage or in this case; to amortize the principal or corpus of an IRA account.
These @PMT functions all assume a payment at the end of each compuonding period; thus your client”s $225,560 has a whole year to earn interest @ 3.99% before the first distribution is made. Thus, the result $12,358 which is the same number I also get and is consistent with the example published by the IRS in the FAQs regarding Rev. Rule 2002-62.
However, is this really mathematically correct? Probably not. The @PMT2 calculator function makes the reverse assumption; e.g. the payments are made at the beginning of each compounding period which yields a result of $11,884; the same number you are getting form your insurance company.
I think the either number is just fine. Actually, the $11,884 number is probably the more accurate number as a reflection of reality; however, the IRS says in writing to use the higher number in their published documents.
Lastly, I get an annuitization method amount of $12,279.92; e.g. a little smaller than the $12,358 and a little larger than the $11,884; that”s becuase the annuitization method; through adjustment in the new mortrality table the underlies the annuitzation mathematics assumes a mid-year distribution event.
Hope this helps.
TheBadger
wjstecker@wispertel.net2003-11-12 14:10, By: TheBadger, IP: [127.0.0.1]

L2: Incorrect 72t calculationsGood answer – our calculators produce the following results…

72(t) Annual Payments

33.3 Years
Life Expectancy

$6,773.57 [$564.46/mo]
1] Minimum Distribution Method

$12,358.29 [$1,029.86/mo]
2] Amortization Method

$12,280.05 [$1,023.34/mo]
3] Annuitization Method
The difference in the annuity method is probably just rounding.2003-11-12 15:21, By: Gfw, IP: [127.0.0.1]

L2: Incorrect 72t calculationsI thank The Badger for his excellent reply. It seems to me that using the method of Western Reserve Life presents a couple of problems.I agree that it might technically be more accurate, but it seems to me that nothing could be totally accurate and still be even moderately feasible.If you follow their logic, the calculation would need to be different for each of the 365 days depending on which day you chose for the distribution and the distribution date would have to the same every year. I have seen nothing that indicates that the IRS requires this.
More importantly, as The badger noted,if sometime in the future I were required to justify my numbers, I could demonstrate that the calculator on this website ( as well as actually doing the actual calculations using the formula in Vanguards brochure on the subject)could reproduce my calculations as well as match the numbers in the IRS s FAQs on their website.If I would rely on Western Reserve,s numbers, I would only have their illustration to back me up, with little info on it to say exactly how they got their numbers and no way for me to reproduce them. this would be particularly important if I were ever to move the money to another institution.
My original plan was to was touse the highest balance of this year,s 4th quarter, the higher of the Nov. or Dec. 120% Mid Term AFR (annual figure, the one published on this site), plug them into the calculator on this site and take monthly distributions using the monthly figure that is spewn out.
Can anyone give a reason why I should not do this.
M&G 2003-11-13 04:49, By: M&G, IP: [127.0.0.1]