Increasing distributions annually for inflation

You are here:
  • KB Home
  • Increasing distributions annually for inflation
< Back

L1: Increasing distributions annually for inflationI thought that I read somewhere that you can increase distributions to keep pace with inflation once a 72T has been started. Is this correct? Or, is the amount initially taken the amount that must be taken for all years under the agreement?
If this is possible, how is the inflation adjustment calculated?2012-03-05 05:09, By: Al, IP: []

L2: Increasing distributions annually for inflationPrior to 2002, there were PLRs that allowed for COLA increases as long as they were implemented when the plan was initiated and the COLA increase started with the 2nd year’s distribution.
However, since Revenue Ruling 2002-62, no automatic COLA increases have been allowed. 2012-03-05 15:39, By: Gfw, IP: []

L3: Increasing distributions annually for inflationDoes that mean it is possible to manually calculate a COLA increase each year based on the CPI Index? Or no?2012-03-06 04:14, By: AL, IP: []

L4: Increasing distributions annually for inflationYou can manually calculate a COLA increase each year based on the CPI Index.
BUT, you cannot use it to increase your SEPP 72-T distributions.2012-03-06 04:39, By: dlzallestaxes, IP: []

L5: Increasing distributions annually for inflationInflation adjustments are not allowed, but a “Recalculated” plan is allowed is the participant makes this election when starting the plan. The result could be wildly different from a COLA and the annual distribution could reduce if the account balance drops. The 3 factors to recalculate every year at the same time are:
1) Your age – one year older results in a higher distribution
2) Interest rate – over a period of more than one year, there is a much greater chance of rates going up than down from here. For just the next year, probably not.
3) Account balance – a gain of 20% in the account balance increases the payment by 20% and a loss of 20% reduces the payment by 20%. If your investments stay the same, the balance will reduce by the 4-5% you distributed in the current year.
Recalculation also means at least 5 times the number of calculations and chance for error and the IRS does not see many of these and probably does not understand them very well. That means more scrutiny and questions. We normally do not recommend recalculation for these reasons, but the IRS has clearly approved recalculation in several letter rulings.
Again, this is much different than a COLA, but does have the potential for increased distributions down the road.
2012-03-06 18:16, By: Alan S, IP: []