Is switching the distribution frequency a modifica
L1: Is switching the distribution frequency a modificaNormally, I receive my SEPP distribution annually in January. I would like to start receiving the distributions monthly. My custodian says this is a “gray area” and may be considered a “modification” and will probably bust the plan. Also, my annual amount divided by 12 results in a fractional amount and I would be a nickel short by the 12th monthly payment, so I would have to ask for a nickel more on the 12th payment.Is there a PLR or other documentation that states I can change the frequency of payments without busting the plan? 2008-12-04 12:07, By: ding7777, IP: [184.108.40.206]
L2: Is switching the distribution frequency a modificaCHANGE CUSTODIANS. If they do not know something as basic as the fact that the only requirement is that the ANNUAL AMOUNTS DISTRIBUTED must be the same, then there is probably a lot more about SEPP 72-T plans that they do not know.The frequencies of payments are immaterial. You can change them year to year, or even during the same year, so long as the ANNUAL TOTALS are the same. You could start out monthly ( Jan-Mar), then quarterly ( June), and then semi-annual (Dec), all in the same year, and then take the full annual amount in Jan of the next year ( and no more in that next year). And then you could change again in the 3rd year.I think that a 5 cent difference will not bust a plan.2008-12-04 13:51, By: dlzallestaxes, IP: [220.127.116.11]
L2: Is switching the distribution frequency a modificaI agree with dlz’s sentiment on this but would hesitate to change custodians over this. In any organization, there can be those who are not as well trained as they should be or there could be a communications problem caused by you and them not being on the same page in this conversation. Changing custodians can be necessary at times, just be sure that this is one of those times. There are enough chances to bust a 72t plan without creating any extra ones. In theory, changing custodians should not matter. In practice, however, itcan create a situation wherein the correct distribution amount is not distributed. If that happens and it is not corrected in time, it WILL bust the 72t plan.In any event, no the frequency of payments does not matter to the IRS. Only the amount distributed per year matters and it needs to be “substantially” the same. The IRS does not seem to be interested in amounts of less than $1. When we do our taxes, we figure the amount to the learest dollar. At $0.49 and less, we round down. At $0.50 and more, we round up. We’ve never had any problem from the IRS over this and have been checked by them a few times.Ed2008-12-04 22:28, By: Ed_B, IP: [18.104.22.168]
L2: Is switching the distribution frequency a modificaDon’t be to hard on the custodian. Most want to do the right thing, and understanding their limitations, they redirect the IRA owner to the experts/specialists.
By saying it is a gray area’, they are in effect saying, talk to your tax professional’. The customer service representatives who handle these calls for the custodians usually receive basic training on IRAs, and are usually prohibited from providing ( and generally should not provide) specific responses to questions such as does this result in a modification of my 72(t)’.
Consider that when the calculation is done, the interest rate that is used is determined by if the calculation is based on Annual, Semiannual, Quarterly or Monthly withdrawals. If the custodian performed the calculation using the annual interest rate, and the IRA owner decides to take the amount monthly, is that a modification? Should the amount be refigured using the annual rate? The answer may seem simple for a tax professional, but for a customer-service representative, the right answer is likely since that is not addressed in the guidance provided, refer the IRA owner to a tax professional, preferably one who specializes in the area of 72(t) planning’
Respectfully,Denise2008-12-04 22:29, By: Denise Appleby, IP: [22.214.171.124]
L2: Is switching the distribution frequency a modificaI agree with Ed and Denise … don’t rush to change custodians. The C/S folks are not tax professionals and are prohibited from answering detailed questions. My suggestion is to call back and ask for the “72(t) specialists” to discuss your situation. Every custodian has people with more training in subjects like 72(t), inherited IRA’s, and working with investments held by trusts. They will be more helpful but expect them to “CYA” by referring you to “your tax professional or tax attorney.”If you change custodians when you have a 72(t) in operation, you will open up more potential problems than you can imagine. Work with your current custodian.Forget about the nickel.Jim2008-12-05 07:26, By: Jim, IP: [126.96.36.199]
L2: Is switching the distribution frequency a modificaI understand your points, but I have a problem with financial institutions who fail to train their employees properly to realize when to refer clients over to another technical specialist in areas that someone is not familiar. SEPP 72-T and Inherited IRAs are two prime examples. Obviously all employees cannot be equally knowledgeable in all areas of tax laws, whether at financial institutions, or accounting and law firms.2008-12-05 13:46, By: dlzallestaxes, IP: [188.8.131.52]