L1: IRS Rate I am in the process of setting up a 72t. Assuming I open the 72t in mid September, what are my options on what interest rate to use?
I know about the equal payments, setting up a separate account from my main IRAand the 5 year rule. Is this as simple as plugging the numbers into the calculator on this site and picking one of the methods? Thanks2008-08-20 07:32, By: Lee, IP: [18.104.22.168]
L2: IRS RateGood morning Lee:
When you say that you will “open the 72t in mid September,” I hope you mean that your “first distribution” will be made in mid September and not that you SEPP IRA Account will be opened. The first distribution date marks the start of your 72(t) plan and the start of the 5-year period. Also, don”t overlook the “age 59 1/2” part of the “5-year rule.”
Your interest rate options for a September, 2008, start date are to use up to 120% of the Federal Mid-term Rate for either July or August, 2008. Most folks choose the rate that will give them the most favorable distribution amount. However, for whatever reason you could choose to use some percentage less than this rate for a lower distribution amount for a given IRA account balance. If you have that much extra funds that you would use the lower rate, then split some dollars out of the SEPP IRA and move to a Non-SEPP IRA and use the highest rate allowed for your distribution.
Once you know your dollar amount and interest rate, then it is simply a matter of “pluggingthe numbers into the calculator on this site and picking one of the methods” and you”re off and running. As you play with the calculator you will learn that the Ammortization method will give you the largest distribution amount.
PS: Don”t forget to use the “Reverse Calculator” to determine a dollar amount to put into your IRA if you have a desired distribution amount. This is a very helpful calculator. Sorrry I left this out of my original post.2008-08-20 08:34, By: Jim, IP: [22.214.171.124]
L2: IRS RateJim,
Thank you for your detailed and prompt response. It was very helpful. I want to make sure I don”t get “hung up” on terminology and/or symantics.
Sometime during the 2nd week of September, I am going to have the required money needed in a separate IRA (based on the results of the calculator and required interest rate, which I believe will be a max of 4.26%) and complete the SEP Distribution form with my broker.I am a little confused because the distribution form asks for a “distribution start date” AND also a “date of first SEPP distribution”. Are these the same?
I”m sure the broker can clear this up but he is on vacation and you seem to be very knowledgeable about this.
Thanks again,Lee2008-08-20 09:34, By: Lee, IP: [126.96.36.199]
L2: IRS Rate>>I am a little confused because the distribution form asks for >> a “distribution start date” AND also a “date of first SEPP distribution”. I don”t know why they would differentiate between the two dates and they do sound the same. The”date of first SEPP distribution” is the date when the plan is officially started and is what they need to establish the plan, check the maximum interest rateand determine an ending date for the SEPP. 2008-08-20 10:58, By: Gfw, IP: [188.8.131.52]
L2: IRS RateThe August rate is 4.26% andwill be valid for SEPP Plans that start (have the first distribution)in both September and October.
Like GFW said, the “distribution start date” and the “date of first SEPP distribution” are the same date, so simplyenter the same date in both places. The only guess I have for having two definitions for the same date would be the form designer had some extra space to take up on the form and this was his / her solution. (Ha) When you get yourconfirmation for the first distribution, make note of the date, plug it into the “Last Distribution Date Calculator” and you will have the first date you can modify your plan.If the broker you are using has a staff then someone in the office should be able to help you, even when vacation time comes around.Jim
2008-08-20 11:12, By: Jim, IP: [184.108.40.206]