length of 72(t) after conversion to MRD method
L1: length of 72(t) after conversion to MRD methodI started my distributions in Jan ’07 & I turn 59 1/2 in Feb 2012. So I have to do these distributions through the end of 2012 and can not stop in March of 2012, when I am past 59 1/2? A full 6 years. That seems correct by your previous explanations.So I have to do 6 full years of distributions. I thinkunder the 72(t) rules I do believe we are alloweda one timeswitch to a MRD at sometime with out a penalty. If the distributions started at near $915K and the balance is nowa bit over 883.5K after this month’s April distribution, at age 58 1/2+approximately what would my MRD be if I switched? If it would be higher than my current distribution that would not make any sense in doing. If it was substantially less, then would I have to continue and would my 72(t) period be then extended for an additional 5 years, from the date of the changefor making that change?Or would it still be able to be ended at the end of 2012?2011-04-29 11:34, By: Tim, IP: [126.96.36.199]
L2: length of 72(t) after conversion to MRD methodStart with our calculator athttp://72t.net/72t/Calculator/First/Modification/Date, enter your exact informationand it will tell you when you can modify/stop your SEPP.2011-04-29 12:15, By: Gfw, IP: [188.8.131.52]
L3: length of 72(t) after conversion to MRD methodWell this does nothing to explain what is going on with this situation vis-a vis my having monthly SEPP payments. I can modify on Feb 9th 2012 as per your tool says after taking my monthly distribution in Jan of 2012? I don’t think so?!?! According to your explanations because the event that comes last is my my 59 1/2 birthday, and/even thoughit occurs early in the year, I am required to take an additional full year of distributions in that year, the 6th year in which I turn 59 1/2. You and your modification tool just do not make this clear.So I have to take a full year of distributions on Jan 30 2012, or through the end of 2012 and can not take just the monthly distributionin Jan and then stop?It seems clear to me you do not really want to just provide a clear explanation of what I clearly explained to be my situation. So thank you but you know….2011-04-29 13:26, By: tim, IP: [184.108.40.206]
L4: length of 72(t) after conversion to MRD method
Garbage in & Garbage out.
Let’s start with… you didn’t give sufficient information to give you an answer. You failed to give your date of birth and you failed to give the date of your first distribution. Those 2 dates will determine when the plan can be modified or discontinued and what options exist at that point.
Your options in the final year – assuming that 5 full distributions have been made and that it has been 365 days times five years plus a few days and that you are over age 59.5 at that time – are as follows…
Take a full annual distribution
Take a pro-rata distribution
Take no distribution
2011-04-29 13:39, By: Gfw, IP: [220.127.116.11]
L2: length of 72(t) after conversion to MRD methodTim,
Your 72T will be completed when you reach 59.5 which is the later of 5 years or 59.5. So in yourcase, sometime in February 2012 you will have satisfied the 72T requirements.As Gfw suggested use the First Payment Modification Date calculator on this site to get the exact date in February whichwill probablybe the day after you reach 59.5
Are you trying to lower the amount of your withdrawals immediately? If so, you may be able tochange to the MRD method for 2011 if you don’t need as much money as was originallyset up with the 72T.
You could use the calculator on this site to determine what the MRD would be for 2011.Insert your 12/31/2010 balance and your age on 12/31/2011 (which should be 59 if I’m reading your info correctly) to determine what the MRD amount would be for 2011.
If you have not yet taken out that amount for 2011, you would be able to start the MRD method this year by only taking the difference for the remainder of 2011.Once you change to the MRD you must continue to use the MRD method until thecompletion of the 72T. In 2012 you will have a couple of options for withdrawals, but I will let the experts comment on those.2011-04-29 13:33, By: meb24, IP: [18.104.22.168]
L3: length of 72(t) after conversion to MRD methodI think that he needs a clarification of what happens when a switch is made :
1. He has taken 4 monthly distributions in 2011 based upon his initial SEPP 2-T plan. If he switches to MRD, his calculation for 2011 would be based upon the 12/31/2010 balance, or the 4/30/2011 balance ?
2. If based upon the 12/31/2010 balance, then he would calculate the new, lower total for 2011, and then subtract the amounts that he has alraedy taken in 2011. If his 2011 distributions to date do not exceed the new MRD total for 2011, then he can take the remaining 2011 MRD balance at any time in 2011 so long as the 2011 total distributions do not exceed the new MRD annual limit.
3. If he has already exceeded the new MRD calculated amount for 2011, then is he ineligible to make that change for 2011 ?
4. As you have noted, and has been posted many times, once he reaches 5 years of annual total distributions ( which would be by 12/31/2011 since he started in January 2007), and is 59 1/2, his SEPP 72-T plan obligations will be done. So, in 2012, he has various options. But based upon his desire to reduce/minimize future distributions, he would just not take any distributions in 2012. If he wanted to take some disributions in 2012, he should wait until February 2012, or later, and then take whatever amount he needed at any time, with no monthly amount required, and no minimum or maximum amount for 2012 either.2011-04-29 15:05, By: dlzallestaxes, IP: [22.214.171.124]
L4: length of 72(t) after conversion to MRD methodThank you for trying to help me. It is a compromise between NOT putting too much of my personal information on the internet and then trying to understand how these distributions end. Not take any distributions in 2012?, even though I do not turn 59 1/2 until February 2012? I am still not sure whether I can end these distributions in the year they actually would end with out voiding the distribution plan with out taking a whole year’s worth of distributions in 2012. The 59 1/2 th birthday comes LAST in this plan,in FEB 2012. It seems quite certain I am going to end these distributions in 2012, I am just still a bit confused as to when I can end them and what the minimum amount will be that I take in 2012? Clearly I want to just stop these distributions in say March 2012with just two SEPP monthly payments/withdrawals of say ~$3750 each,= ~ $7500 in totalwhile my annual distributions are ~$45,000.Even the modification date tool shows that modification can take place after 2/18/2012. That isNOT before 2012. So then it is the same question as to whether you can endMONTHLY SEPPs in the middle of a year THAT OCCURS AFTER you have completed the full five years of distributions, by continuingthe SEPP monthly payments for only a small portion of a tax year? OR are you then requiredto take a whole $45K in that last year where the 59 1/2 birthday falls relatively early in the year? This seems quite strange how ending this plan seems to be a bit more complicated than actually starting it up, and filing a couple extra pages with my tax return each year. Thank you for your patience. I think this is a very valuable resource being provided here. If I am able to get a definitive answer to my situation I would then have the basis to then talk with my tax accountant and get a confirmation. I guess I could write to the IRS as well but maybe better to let sleeping dogs lie. Thanks2011-04-29 16:18, By: tim, IP: [126.96.36.199]
L5: length of 72(t) after conversion to MRD methodSince you will attain age 59.5 in 2012 and you have completed 60 months (5 full years) in December 2011, in 2012 you will have 3 options:
Take nothing before 2/9/2012 (if this is the date your got from the First Modification DateCalculator)
Take 1/12 the annual amount That would be January’s payment
Take the full annual amount
It seems you’re trying to stop these withdrawals ASAP, so it would probably be best to take NOTHING before the First Modification Date (2/9/12) and then after that date, you can withdrawal as little or as much as you want at any time.
In any event, you DO NOT have to take a full annual amount in 2012 since your 72T will end 2/9/2011.2011-04-29 16:45, By: meb24, IP: [188.8.131.52]
L6: length of 72(t) after conversion to MRD methodOK that seems clear and those 3 options lookclearly delineatedto me. I guess I am just not getting the part of the 72(t) rules that say distributions must continue for five full years or age 59 1/2 whichever comes LAST, takes the longest to acheive. So I guess the interpretation is that even when 59 1/2 comes last it is the year in which you turn 59 1/2 and not the actual date in the year when you turn 59 1/2 that is the determinate factor in establishing when the 72(t) period is eligble to be ended or dissolved. I am going to have to look the wording of these 72(t) distribution IRS rules over and see if I can see where that is spelled out or so indicated. Thank you for bearing with me in getting my escape planned. It looks like with less than 9 or 10 distributions left to do it might not even be worth trying to convert to a MRD. But I will look into it using the tools on this great web site. Thanks to all and good luck with this managing your own retirement which for many of us, as in my case at age 55 is/was not by choice. 2011-04-29 17:19, By: Tim, IP: [184.108.40.206]
L7: length of 72(t) after conversion to MRD methodTim,
I agree with the 3 options meb posted in your case, and if you are looking to preserve IRA assets, taking nothing in 2012 is the best choice. Unfortuneately. the IRS does not clearly spell out these options, but over the years various private letter rulings and tax court decisions have made it obvious that 3 these options are valid. The IRS has not challenged the use of any of them. But if you wanted to play it ultra safe, you are only talking about one monthly payment in 2012.
As for the one time switch to RMD, you could probably do that effective 1/1/2011 using the methods described by dlz. I would advise against trying to do this switch effective mid year, which is different than doing it effective 1/1/2011 and just adjusting your remaining payments downward to reach a 2011 total of the annual RMD figure. And if you elect to do this, the same options for 2012 remain, except that if you decide to take the January 2012 payment, you will have to do another RMD calcalution using the 12/2011 year end balance. Note that if you decide to switch to the RMD method, you can change the “individual vrs joint” calculation option to further reduce your 2011 distribution. In other words, you probably used the individual option to maximize your original calculation in 2007, but now you want to reduce it as much as possible, so you would want to change to a joint calculation for RMD and if you do that you must use the age of the oldest beneficiary of your IRA as of 1/1/2011 for the other age than your own.2011-04-29 17:40, By: Alan S., IP: [220.127.116.11]
L8: length of 72(t) after conversion to MRD methodIf you want to have sleepless nights, contact the IRS.
1. There might be 1 or 2 people at IRS who have ever heard of SEPP 72-T, and MIGHT understand its nuances.
2. IRS refuses to issue clarifications on many aspects of SEPP 72-T plans, despite numerous efforts by gfw, Alan S, etc. who are major contributors to this site.
3. Nina Olson, IRS NATIONAL TAXPAYER ADVOCATE, in her latest report to Congress blasted the IRS for refusing to issue official IRS RULINGS on several aspects of SEPP 72-T plans (and other issues). Instead the IRS requires Private Leter Rulings ( PLRs) at $ 10,000 @ paid to the IRS, plus legal fees etc. when they continually apply to identical issues, like partial transfers, and initial and final year distributions.
4. Also, unless you somehow get something in writing from IRS on an issue, they will usually deny that they gave you the “advice” that they gave you over the phone.
5. The gurus on this website are intimately knowledgeable on SEPP 72-T.
6. Only a limited number of tax practitioners have any knowledge of or about SEPP 72-T and its nuances.2011-04-29 19:36, By: dlzallestaxes, IP: [18.104.22.168]
L6: length of 72(t) after conversion to MRD methodmeb24, I think you have a typo in this last sentence that you should fix… (He said he turns 59 1/2 in 2012)
….in 2012 since your 72T will end 2/9/2011
2011-04-30 03:53, By: Ken, IP: [22.214.171.124]
L7: length of 72(t) after conversion to MRD methodYes Ken, that is a typo Should read …. 72T will end 2/9/2012.
However, I was unable to edit the original post- site says ICANNOT edit if there have been any replies to my post. Since it is already past that date in 2011,and we are discussing what he can do in 2012, I think readers will realize it was a typo.
2011-04-30 11:16, By: meb24, IP: [126.96.36.199]
L8: length of 72(t) after conversion to MRD methodWe did away with editing a message after there was a reply about 3 months ago.
There was a post that I responded to and after the response, the original poster went back and changed the original message to a point where my response made very little sense. I then saw the same thing happen to someone else, so I made the change. 2011-04-30 11:30, By: Gfw, IP: [188.8.131.52]
L9: length of 72(t) after conversion to MRD methodGfw,
Thanks for the clarification on ability to edit.
Yes, I think I saw one recently where OP removed his/her question and there were only answers left. Maybe I could have replied to my own post about the typo and it would have appeared closer to where the typo error occurred.
Also, thanks for a great forum One of my favorites!2011-04-30 12:00, By: meb24, IP: [184.108.40.206]