# Minimum Distribution Method

L1: Minimum Distribution MethodWhen a SEPP is established (age 56) using the minimum distribution method can that amount be used every year of the SEPP or does a new minimum distribution amount need to be calculated each year using the new IRA account balance and the older attained age?2011-05-10 15:48, By: Dave4536, IP: [165.200.106.10]

L2: Minimum Distribution MethodUsing the minimum distribution method, you recalculate annually using your atained age as of 12/31` and the balance as of the previous 12/31.

If you are trying to reduce the distribution, start with a single life and the amortization method and back into your distribution using the reverse calculator. You may want to start by reading our planing pointers.2011-05-10 16:00, By: gfw, IP: [24.148.10.164]

L3: Minimum Distribution MethodThanks G,

The IRA is in a VA which cannot be turned into two separate IRA accounts without incurring a surrender charge. The IRA owner is 56 years old, has roughly 284k in the IRA, and wants the SEPP amount to be $9000, if possible. The minimum distribution method results in an initial SEPP amount of just under $9900 but would almost assuredly result in ever increasing SEPP amounts as the owner ages and (hopefully) market gains add to the IRA balance.

Maybe this is the best result given the parameters of the case……..

Dave

2011-05-10 16:12, By: Dave4536, IP: [165.200.88.85]

L3: Minimum Distribution MethodThe Minimum Distribution Method (MD) was added as a “safety net” to allow reducing the annual distribution amount when the stock market tanked in the early 2000’s so people could try an salvage what was left of their IRA accounts. If you are starting a new SEPP Plan, follow GFW’s advice.

The Amortization method and maximum allowable interest rate will produce the maximum distribution amount per year. If your account balance produces too much distribution for your needs, then use the reverse calculator to help establish the correct IRA amount to generate your desired annual distribution. In later years if you need to REDUCE the annual distribution amount, then switch to the MDmethod. You negate your options for the future if you start with the MD method.

Jim2011-05-10 16:17, By: Jim, IP: [70.167.81.119]

L4: Minimum Distribution MethodDave:

I did a quick calculation and determined that you have about $111,272 too much in the VA to provide $9,000 per year using the Annuitization method.

(NOTE TO GFW: The calculator showed the annuitization method producing the greatest amountwhich should be the amortization method.)

In any case Dave, what would be the surrender charge to move the $111,272 to a new IRA account? You should get 10% or $11,123 free making about $100,149 subject to CDSC. It might be cost effective to pay the CDSC on this amount to set things up right. However if this option is not workable or acceptable, then use either the amortizaton or annuitization method and reduce the interest rate to a level necessary to produce the $9,000 annual distribution. Then you still have the MD method available to you. Of course this may result in an increase in annual distribution if you start out with too low of an interest rate with the other two methods.

If you move to a new VA with the same company they might give your a “one-time-good-deal” and waive the CDSC. Remember, there is always someone in the company with the authority to grant waivers.

Jim2011-05-10 16:30, By: Jim, IP: [70.167.81.119]

L5: Minimum Distribution MethodJim… if using the reverse calculator, the annuity method would require more dollars than the amortization method. Just the oppsite of the regular calculator.2011-05-10 16:39, By: Gfw, IP: [92.137.219.134]

L6: Minimum Distribution MethodOK, I’m having a “duh” moment on this one.

Whydoes the reverse calculator operate as you described?

Jim2011-05-10 16:48, By: Jim, IP: [70.167.81.119]

L7: Minimum Distribution MethodOH!! I get it!

Since the Amoritzation method produces a greater distribution amount for a given number of dollars, it takes fewer dollars to fund an amortization distribution!

It’s time for lunch!

Jim2011-05-10 16:52, By: Jim, IP: [70.167.81.119]

L7: Minimum Distribution MethodIt takes more dollars to produce the same distribution as the amortization, which is why the amortization method always produces a higher distribution using the same capital valu

In the old-days – under 89-25, the annuity method took less since it would produce the highest distribution. Take a few minutes and recheck the reverse calculator – the MD mmethod will always require the highest dollar amount to fund a given annual disribution.

At any rate, we just arrived in Provence, France and I need to start getting ready for dinnner – its almost 7 here… For the next 3 nights…http://www.crillonlebrave.com/and it appears to be every bit as pretty as the pictures. A little wine tasting is on schedule for tomorrow.

Have a great evening.2011-05-10 17:02, By: gfw, IP: [24.148.10.164]

L8: Minimum Distribution MethodI think Jim’s idea is a good one, ie reducing the interest rate to generate a fixed dollar distribution around the 9,000 amount. That provides down side protection in the event the investments go south, and possible upside potential if the market gains and the one time switch to RMD is made, but you would have to test this using a minimum interest rate and joint life assumptionto see how it compares with the current RMD calculation. This also assumes that the surrender charge is high enough to warrant this approach.

We also are not sure whether your analysis is such that the downside protection, meaning the risk the RMD method could reduce distributions below 9,000 or the potential upside potential is most important. That depends on how well you have analyzed your expense needs for the next 5 years, the safety margin you are using etc.

2011-05-11 03:38, By: Alan S., IP: [24.119.230.17]

L9: Minimum Distribution MethodThanks for the reply’s and, Gordon,have a great time in France!

The annuitization calculations work well with an interest rate of 0%.I haven’t seen any discussion onwhether using a 0% interest rate is acceptable. What do you think?

Dave2011-05-12 15:51, By: Dave4536, IP: [165.200.127.254]

L10: Minimum Distribution MethodFrance has been fun. Just checking email before getting ready for dinner – it’s now about 6pm here.

Any interest rate lower than the maximum should be acceptable. With that said I probably wouldn’t go negative, but 0% should be Ok.2011-05-12 15:59, By: Gfw, IP: [92.150.179.57]

L11: Minimum Distribution MethodMore importantly, since gfw arrived in Europe, the dollar is rising vrs the euro!2011-05-12 22:06, By: Alan S., IP: [24.119.230.17]