monthly equal periodic payments vs annual

L1: monthly equal periodic payments vs annualsection 72(t)(2)(A)(iv) provides , in part, that if distributions are part of a series of substantially equal periodic payments( not less frequently than annually),
made for the life) or life expectancy) of the employee or the joint lives( or joint life expectancy) orf the employee and beneficiary, the tax desci ribed in72(t)(1) will not be applicable. Persuant to 72(t)(5), in the case of distributions from an IRA, the IRA owner is substituted for the employee for purposes of applying this section.
Does this mean that my IRA-SEPP income must be annually, or can I take it monthly???2004-12-29 12:58, By: John Pillis, IP: [65.35.196.168]

L2: monthly equal periodic payments vs annualTake it any way that you desire (weekly, monthly, etc.)as long as the amount that you take during the year equals the amount calculated to be the annual payment.
2004-12-29 13:02, By: Gfw, IP: [172.16.1.74]

L2: monthly equal periodic payments vs annualJust surfing around the day before New Year’s eve and I saw this question. Take a look at this article http://www.brentmark.com/periodic.htmfor more information about your question.
There are clearly two ways to look at the issue of monthly payments. One is that the total annual amount distributed is the “subsantially equal periodic payment”. The other is that the monthly payment amount is the “substantially equal periodic payment”.
As you note in your first sentence, the language seems to indicate that “substantially equal periodic payment” is the monthly amount. Why else would they add “not less frequently than annually” to the sentence. There are PLRs out there (see the article I cited above) that also bear this theory out.
Have a happy new year!2004-12-30 10:34, By: Pat Matthews, IP: [24.73.229.180]

L2: monthly equal periodic payments vs annualIn need to weigh in on this issue. There is absolutely no question in my mind that the substantially equal periodic PAYMENT is the annual payment and not the sum of the intra-year payments made, be they monthly / quarterly/ random, etc. My reasoning is as follows:
1. The IRC (as enacted by Congress) says not less frequently than annually۝. This creates what I will call a one-sided or right-sided test; e.g. minimum of one distribution per tax year of the taxpayer. This language requires the IRS to enforce the minimum of one distribution per year۝ rule; they actually have no choice in the matter. In addition, this same language gives the IRS no license or authority to govern or regulate intra-year distributions. Had Congress wanted them to, they would have used different language to cover the issue.
2. If one goes back to the House and Senate minutes of the enactment of IRC 72(t)(2)(A)(iv) there is some discussion about inter-year versus intra-year distributions and it is clear upon reading those minutes that Congress specifically intended a once a year۝ test and affirmatively left the issue of intra-year distributions to the devices of the taxpayer. Said another way, Congress, in an indirect manner, told the IRS to stay out of the intra-year issue.
3. Although not exactly on-point۝, this same issue rears it head in the 401(a)(9) regulations where it is abundantly clear that taxpayers can essentially do whatever they want to do on an intra-year basis in order to satisfy their RMD requirements.
4. The IRS has never directly ruled (and if you think about for a moment; they really can’t) on this issue of intra-year distributions; however, there must be a good dozen or more PLRs that deal with intra-year distributions and everything short of random has been approved; however, typically, the issue of intra-year distributions was presented in the PLR facts; this issue was not the central issue of the ruling.
5. If the IRS thought they had some authority to rule in this area, I suspect strongly that they would have done so long before now by speaking in any number of forums; e.g. revenue procedures, revenue rulings, PLRs, etc. Further, the entire process of reporting distributions, as designed by the IRS, for a taxpayer of any age, is an annual one via the 1099R. The IRS sees none, nor cares to see, any of the intra-year transactions.
6. Last, but not least, one should carefully read IRC 408(d)(2)(B): For purposes of applying 72 to any amount described [above] all distributions during any taxable year shall be treated as one distribution. This kinda says it all.
TheBadger
wjstecker@wispertel.net
2004-12-30 11:40, By: TheBadger, IP: [66.250.23.21]

L2: monthly equal periodic payments vs annualAs you say, “There is absolutely no question in my mind that the substantially equal periodic PAYMENT is the annual payment and not the sum of the intra-year payments made, be they monthly / quarterly/ random, etc.”
We agree completely, as long as you don’t redefine “year” to be “calendar year”, which is what I thought the original post was referring to.
For example, if monthly distributions start in 7/2005, the same monthly distribution amountwould bemade for 12 consecutive months, causing both the “annual payment” and the “monthly” payment to be substantially equal. However, the total distributions made in2005 would be 1/2 what was distributed in 2006.
However, the total annual amount distributed – the total amount distributed over any given 12 month period – would remain the same. This is consistent with PLRs 200105066 and 200106039.
Do you disagree?
2004-12-30 12:38, By: Pat Matthews, IP: [24.73.229.180]

L2: monthly equal periodic payments vs annualHello pat:
Now you’ve got me confused. Maybe restate the issue differently. In my opinion, a calendar year and a tax year are the same thing; they have to be for individual taxpayers. Skipping past what a taxpayer might chose to do in the 1st year (as there are several options here); assume the annual computation for the distribution is $120,000. In any year under question, the taxpayer may:
1. Distribute $120k as one transaction.
2. Distribute $10k per month or $30k per quarter.
3. Distribute $25K, $10k, $30k, $45K, $2k and $8k on random dates throughout the year.
Further, the taxpayer is not bound by his decisions of a prior year; e.g. do monthly for a while & then switch to random. What is important and the only thing that is important is that the sum of the distributions for any tax year equal the $120k; not the manner in which it was distributed throughout the year.
TheBadger
wjstecker@wispertel.net
2004-12-30 12:50, By: TheBadger, IP: [66.250.23.21]

L2: monthly equal periodic payments vs annualHey Bill, seems like we’ve had this conversation before, doesn’t it?
I always thought the first partial year and the last partial year were the difficult ones. I agree that once you’re in the interim years, it’s pretty straightforward. Whether you want to do monthly distributions or annual, the total amount distributed in each of those calendar years is the same.
I really don’t have any inkling into IRS practice as to how they would react to when distributions are taken out during the calendar years. Would there be a problem if you based your calculations on an annual amortization schedule and then took them outmonthly (or vice versa)? I have no idea.
My (admittedly conservative) viewwould be to take the distributions out according to however the calculations were performed. If you did a monthly amortization schedule, then take the monthly amount out each month. If you did an annual amortization calc, then take them out annually.
It seems to me that the goal is to avoid conflict with the IRS, and that keeping your withdrawals consistent with your calculation method would be the safest approach.
Have a great New Year!
– Pat2004-12-30 13:05, By: Pat Matthews, IP: [24.73.229.180]

L2: monthly equal periodic payments vs annualMy turn. Suppose someone wantsmonthly income from the SEPP and that calculates out to be $2,000 per month. Assume also that the first distribution occurs onOctober 1, 19XX,and continues each month for 7 years, at which time the person hits age 59 1/2. (DOB is October 1 or the same day as SEPP start.)
For the first calendar year a total of $6,000 ($2,000 X 3 months) is withdrawn. For the next 5 years, $24,000 per year is withdrawn at $2,000 per month. Then in the 7th year $20,000 is withdrawn (10 months @ $2,000 per month) and the SEPP requirements … 5 yeares and age 59 1/2 … have been met. At this point the person is free to make changes without a problem. Also,for this last (7th) year the client will receive two 1099-R forms; one coded for SEPP exception and one for Normal Distribution after age 59 1/2.
Previous discussion posts have indicated this process would past the muster of the service. Because the distributions are even, the ‘substantially equal’ concept has been met.
(OK Bill, I have my hands over my head so you can fire away.)
Jim2004-12-30 14:42, By: Jim, IP: [68.1.157.228]

L2: monthly equal periodic payments vs annualHello Jim:
Conceptually, I think everthing you describe is 100% correct. However, if the person’s DOB is 10/1; then would he turn 59 1/2 on 3/31/XY resulting in only 3 monthly distributions in the final year for a total of $6k???
TheBadger
wjstecker@wispertel.net
P.S. If am going to fire away; holding your hands over your head will do no good. You will need a kevlar flack jacket. Happy New Year.
2004-12-30 14:52, By: TheBadger, IP: [66.250.23.21]

L2: monthly equal periodic payments vs annualBill:
Shot fired and direct hit! If I had a vest I wouldn’t be acceptable to corrections, as you have learned that I can take … most of them coming from you thankfully .
OK. I guess my concept is correct, with the exception of only needing the 3 months in the 7th year.
Thanks and Happy New Year to you also. (I had a Merry Christmas and I assume you did too.)
Jim2004-12-30 15:03, By: Jim, IP: [68.1.157.228]