Lower 72(t) payments

L1: Lower 72(t) paymentsI transferred a new client over to my B/D this year and need to continue taking required 72t payments.The old rep and firm have taken the first two years of payments and originally set up the annual payment amount that started in June two years ago. Due to the markets over the first two years the payment distribution now on the third year will be very high. Can the amount be reduced that is taken annually from the clients IRA and how is this done. Are annual payments based on a calendar year always. In this case the client started taking distributions in June so is the distribution schedule based on a fiscal year.2008-06-16 11:52, By: WJP, IP: [68.73.201.150]
L2: Lower 72(t) paymentsThe distribution is based on a calendar yearregardless of the month the first distribution was made.
The only way to change the payment without busting the plan is to do a one time switch to the minimum distribution method. The new payment may be more, or less, than the old payment. This change is permitted only one time.2008-06-16 12:00, By: gfw, IP: [98.214.67.158]

L2: Lower 72(t) paymentsWJP,Are you saying that his SEPP plan was designed forannual recalculation of his next year”s payment under Amortization or annuitization, using the newest year end balance to recompute the next year, or is he doing it under RMD? If the former, you should read the question posted on 1/7/2008 by Cromehorse, and pay attention to the reply byALAN S and the first one from GFW (Gordon-the sponsor of this website) to better understand how recalculation (for non-RMD) SEPP plans works. while in dicusssion forum page, simply change the “# months to view” at top to 6, and check off “show all records”, then when it refreshes, just scroll down till you find that post in January. I may be off by a day or two. I opted not to do recalculation because I wanted to know the specific amount I would be getting for my five yearplan.If he is worried about his account growing so much that he is now forced to take out more than he wanted (if non-RMD), especially with the max interest rates so low for recalculation, it sounds to me that he should have left the investments where they were. We should all be so lucky. KEN2008-06-16 15:32, By: Ken, IP: [75.67.65.254]

L2: Lower 72(t) paymentsTransfer of a plan on re calc can be hazardous, not only due to the extra years of calculations that must be done, but also due to lack of understanding of each element of the method used by the new custodian.
However, the original post could also reflect a non recalc plan where the account balance has dropped (perhaps invested in financial stocks) and now the annual distribution represents a higher portion of the remaining account. It is not real clear in what context the current payment is “very high”, so perhaps it would be good to have that clarified.
In either case the one time switch can be made effective 1/1/08 and the total distribution for 2008 managed for that number.2008-06-16 18:00, By: Alan S., IP: [24.116.165.60]

L3: Lower 72(t) paymentsThanks for the responses. I would like to do a recalculation using the one time switch to the minimum distribution method. I am assuming this is a one time switch for the remaining 3 years and not one time switch p/year. My client would like to take out less money because the account has dropped because of the markets. I understand the calculation is based on Dec 31, 2007 close for the recalculation for the minimum distribution for 2008. My clients birthday is 6/11/48 (60 years young). Does it make a difference for the calculation that his spouse is 46 years young and not the sole primary beneficiary because of a second marriage.Is there a calculator to help figure the distribution amount.Thanks, 2008-06-17 14:19, By: WJP, IP: [68.73.201.150]

L3: Lower 72(t) paymentsThanks for the responses. I would like to do a recalculation using the one time switch to the minimum distribution method. I am assuming this is a one time switch for the remaining 3 years and not one time switch p/year. My client would like to take out less money because the account has dropped because of the markets. I understand the calculation is based on Dec 31, 2007 close for the recalculation for the minimum distribution for 2008. My clients birthday is 6/11/48 (60 years young). Does it make a difference for the calculation that his spouse is 46 years young and not the sole primary beneficiary because of a second marriage.Is there a calculator to help figure the distribution amount.Thanks, 2008-06-17 14:19, By: WJP, IP: [68.73.201.150]

L2: Lower 72(t) paymentsIf single life expectancy was the basis for the initial plan calculations, then you have to stay with the single life tables.
You can”t make a switch to the joint tables unless they were used in the initial caluclations.2008-06-17 14:26, By: Gfw, IP: [98.214.67.158]

L2: Lower 72(t) paymentsGordon,Somehow I had it in my head that there were no constraints in the one time switch other than what could be used with an initial RMD method election for the plan. 2002-62 does not shed any light on this. Was there a ruling on this, or are you advising this to play it safe?2008-06-17 18:26, By: Alan S., IP: [24.116.165.60]

L2: Lower 72(t) paymentsI”ll have to retract my earlier statement about changing tables. I went looking for the article that my comments were based on and failed to find. In fact, after re-reading Section 3 ofRR 2002-62, changing tables seems to be permitted.

The guidance in this revenue ruling replaces the guidance in Q&A-12 of Notice 89-25 for any series of payments commencing on or after January 1, 2003, and may be used for distributions commencing in 2002. If a series of payments commenced in a year prior to 2003 that satisfied 72(t)(2)(A)(iv), the method of calculating the payments in the series is permitted to be changed at any time to the required minimum distribution method described in section 2.01(a) of this guidance, including use of a different life expectancy table. 2008-06-18 02:06, By: Gfw, IP: [98.214.67.158]

L2: Lower 72(t) paymentsAs GFW says, the switch to the minimum distribution method can only be done once(per SEPP?) but it also cannot be undone later without busting the plan.
Ed2008-06-18 14:00, By: Ed_B, IP: [67.170.159.37]

L2: Lower 72(t) paymentsThanks, Gordon, for the clarification.
Having the extra flexibility is a useful tool in managing the switch to produce a closer figure to what you think you need to the end of the plan. However, since the result of an RMD calculation is subject to potentially large swings from year to year, it might be wise to hedge somewhat to make sure you don”t end up with an inadequate amount.
Golf analogy would be playing a safe lay up shot and still putting it in the rough!
2008-06-18 16:16, By: Alan S., IP: [24.116.165.60]