Is there an issue with using too “Recent” of a balance to setup 72T?
L1: Is there an issue with using too “Recent” of a balance to setup 72T?New 72T PlanDOB: 10-5-1964 (very close to 53 years old)First Distribution: 10-15-2017
In the post to Tina-Lady of Leisure yesterday, you referred to using a “recent” balance of the IRA to establish the 72T amount. I’ve read through the entire forum a few weeks ago, and remember this being topic discussed but I cannot find the post(s). I remember the posts mentioned using a balance that was in the IRA within the last 6 months (e.g. using Dec 31st if you set up your 72T within the first part of the year) and also referred to being within 10% of the most recent balance amount. The comment made was that this should meet with the IRS definition of recent.
I can understand the IRS would have issues stretching the definition of “recent” to a balance beyond 6 months, and the definition of recent might be “soft” but, with the recent run-up in the market, is there a problem or any downside to using the balance that is very close to the day that you asked your IRA institution to set up your 72T? For example, would it be ok to use the IRA balance from theday before you submitted your paperwork to establish the 72T? That would be about as “recent’ as it gets. I would hope this would not be a problem, especially if you document the balance. I would printout/screenshot my financial institutions webpage showing all my positions and balances as backup documentation for future reference. I would also plan to use the form you provide on this site for documenting the SEPP.
Finally, this site is beyond helpful. I have learned more from this forum and your responses on 72T questions than any other source, including my financial advisors.
Thank you for your help.2017-09-21 15:40, By: Tanko, IP: [126.96.36.199]
L2: Is there an issue with using too “Recent” of a balance to setup 72T?RR 2002-62 paragraph d indicates that the account balance must be “reasonable”. This is in relation to the current balance. Therefore, the variance between the value on a selected date and the current value must be limited. For example, if the current balance is 20% lower than on some prior date, the IRS would probably not consider it reasonable to use that higher balance, although I do not think that the IRS ever defined what difference would make the value unreasonable in their eyes.
For example, in the case of a severe market drop such as occurred in 2008, going back 6 months would produce an unreasonably high value in relation to current value. In that situation, a taxpayer may only be able to go back to the prior month end. So there is no problem in using a very recent value since such a value is more likely to be closer to the current value. The date used should therefore consider the value difference as primary, and the date and availability of account statements as secondary.
2002-62 provides an example of using the prior 12/31 balance for a 7/15 initial distribution, but the example also infers that the RMD method applies. The RMD method is more likely to relate to a year end value since that is how RMDs are based, than the fixed dollar methods that are used by the vast majority of 72t plans.
Therefore, selection of the date must reflect the value on that date and the need to document that value. Typically a month end statement is used since they are almost always available, at least for the typical investment mix. But there has been no reported problems from the IRS in accepting a screen print of yesterday’s value either, since a more recent value has a better chance of being “reasonable”.2017-09-21 16:32, By: Alan S, IP: [188.8.131.52]
L3: Is there an issue with using too “Recent” of a balance to setup 72T?The date that you select will also affect the interest rate that you can use in your calculation. I suggest that you do calculations using the highest applicable month-end balance and applicable interest rate, and compare the calculation with using the highest interim balance in the current month, and the relevant interest rate that is available to use.2017-09-22 15:32, By: dlzallestaxes, IP: [184.108.40.206]