IRA Draws

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L1: IRA DrawsI’ve asked these questions in the past but just want to be sure I’m not missing somehting before I retire…1. Is there any way to draw more than the current 72(t) rate (about 4.7% for me now) from an IRA without a penalty? I am not disabled, etc.2.How doesthe IRS actuall catch a person if they are taking too much. For example, say I drew9% of the beginning balance. How does the IRS know if that’s wrong or right if the 1099has the distribution code as “exceptionapplies?”3. Does the IRA custodian report the begining balace of an IRA account to the IRS?4.If I “annuitize” my IRA and the payments to me equate out to a 7% income and the 72(t) rate should be 4.7%, what happens? Is buying an immdeiate annutiy a way around 72(t)?5. Finally a follow up to question 4. How does an immdiate annutiy come into play (penalty or not) for non-IRA money if I am under 59.5??Thanks as always….2011-03-15 21:28, By: Pete, IP: []
L2: IRA Draws1. No, not unless you have other exceptions that exceed the 72t annual distribution. That would be very unlikely if you are not disabled.2. First, very few custodians offer the exception code and those that do we can probably assume check the calculations out for accuracy. It is not clearly known what the IRS internal procedure is forchecking calculation accuracy, but the IRS receives a Form 5498 for each IRA account showing the year end balance and presumably knowswhether markets have been rising or falling. But if the IRS requests your calculations for any reason whatsoever, your plan would be DOA. 3. No, just the year end balance every year and the amount you distributed.4. Not with an IRA account, but an immediate annuity from a non qualified annuity gets the benefit of an additional exception for immediate annuities that IRAs do not. With an IRA, your calculation must be based on one of the 3 approved methods and method spinoffs such as recalculation. All of them are based on your life expectancy in some form, so an immediate annuity with term less than your life expectancy or joint life expectancy would not qualify.5. If you have a NQ annuity, you can annuitize it for a period less than your life expectancy and that will increase the annual payment in proportion to the term being less than your life expectancy. However, this can only be done with an immediate annuity, so to be sure the contract can only exist for one year before it is annuitized or it does not meet the definition of “immediate”. You should get a written guarantee from the insurance company that they will provide a Code of 2 on the 1099R per the 1099R Instructions that apply to valid exceptions.Note: Rationale for the above. You can pull up Sec 72 from this site. Go to 72(q)(2)(I) and 72(u)(4). This is the immediate annuity exception that does not require life expectancy calcs like the ones we are familiar with elsewhere in 72q and 72t. Equal periodic payments not less frequently than annual are still required, but the life expectancy limitation is no longer present. But be sure to get the guarantee of Code 2 from the insuror if you plan to pursue this exception as a 5329 may not suffice as it does for SEPP plans.2011-03-15 23:17, By: Alan S., IP: []

L3: IRA DrawsFrom the post above re: the penalty….How shoud I interpret this statement”The IRS does not have a clue how to handle SEPP 72-T plans and distributions.”Doesn’t give me a whole lot of confidence that they know a correct draw rate (4.7%) from an incorrect one (9%)….Thoughts??2011-03-16 10:54, By: Pete, IP: []

L4: IRA DrawsTrust me… they will know. The IRSgetsending assets and distributions on an annual basis sent by the IRA custodian/administrator and they have a very good computer system. They like to audit SEPP plans since they also know that there are a lot of plans that don’t comply – and sometimes their computer merely kicks out arbitrary audit letters to check compliance.If you are looking for someone to tell you it is ok to knowingly set up a bad SEPP, you have come to the wrong website. 2011-03-16 11:59, By: Gfw, IP: []

L5: IRA DrawsI was not implying that you could do whatever you wanted to because the IRS would not know. But I do disagree with gfw that the IRScomputers keep track of SEPP 72-T plans. If they did, then there would not be all of the meaningless notices that they send out to taxpayers who are in compliance.Further, if they really cared, they would straighten out and clarify the various confusing issues. But they have chosen not to do so.2011-03-16 13:29, By: dlzallestaxes, IP: []