Question on Annual Recalculation

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L1: Question on Annual RecalculationHello,
Was hoping someone could help me with the following requestions regarding Annual Recalculation of a 72t.
1) Is an annual recalculation available for a distribution utilizing the amortization method. I was told by a Fidelity Retriement specialist that it is only available for the minimum distribution method, but I don’t belive she is correct.
2) Is the annual recalculation required, and if not, oncethe recalculationis started (I am 49 years old), are you required to perform the annual recalculation every year until 59 1/2 years old (in my case) or can you choose each year whether you wish to perform the recalc?
3) When the annual recalculation is performed, must all three factors (e.g. life expectancy, amount and rate) be used in the recalculation?
Thank you,
Tony2004-08-26 14:37, By: Tony, IP: []

L2: Question on Annual RecalculationHello Tony:
1. Fidelity is wrong; they are behind the times.
2. Annual Recalc is optional; but, once started it must be continued every year until the SEPP plan is completed.
3. Yes.
[email protected]
2004-08-26 14:48, By: TheBadger, IP: []

L2: Question on Annual Recalculation
Is Fidelity really ” wrong ” ?
Based soley on recent PLR’s, I would be surprised if they would advise anyone that recalculation is acceptable under the amortization method of calculating SEPP payments.
Although I do think the recalculation is possible, I’m not surprised by the answer from Fidelity.
2004-08-29 08:04, By: Gary T, IP: []

L2: Question on Annual RecalculationIn this particular case I do think Fidelity is wrong. Allow me to explain. In general, relying upon 1,2,3 or more PLRs on a subject is “just okay” and needs to be done carefully. However, in this case we have an Information Letter issued by the IRS in 2000 on the subject on annual recalculation which we all thought became moot with the issuance of RR 2002-62. An information letter is effectively binding on the Service at least with respect to the theory contained.
Therefore, I look at the three PLRs issued on this subject as accomplishing two events:
1. Unto themselves the three PLRs approve annual recalculation; at least at a sufficient level that I am comfortable issuing an opinion letter (but Fidelity might not be comfortable enough —- remembering that a trustee/custodian’s objectives in this environment are not always the same as the taxpayer’s).
2. More importantly, the PLRs (although they don’t directly say it or reference it) now permit us to go back to the Information Letter of 2000 and rely upon it as the binding authority. Said another way, the PLRs effectively exempt “annual recalculation” from RR 2002-62, by implication saying that this process is outside the boundaries of RR 2002-62. Therefore, where does one look for authority? Back to 2000.
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. 2004-08-29 08:19, By: TheBadger, IP: []

L2: Question on Annual RecalculationIn defense of Fidelity … and to highlight a common problem … I offer the following.
IRA custodians such as Fidelity, are not in the business of giving tax advise. CPA’s like TheBadger are not in the business of giving investment advise. The problem arises because running a SEPP has rules and procedures which tend to run into each other’s business. It becomes very difficult to separate the two.
I have found that IRA custodians have been forced into performing SEPP calculations by demands of the market … ie, customers. IRA custodians will work with you up to a point. When the situation gets too close to crossing the line into the tax advise business, they will clam-up and make the customer find a CPA to do the calculations and deal with IRS matters. This action makes for bad relations, especially since, per TheBadger, there are very few CPA’s in the country who specialize like him in the SEPP market. If an investment client can’t get the tax advise they seek from their custodian, they will in many cases move their account to another custodian who will provide the needed tax advise, which is wrong from every aspect. Custodians have become more acommodating than they probably should have. So what do you do?
If you are a ‘do-it-yourselfer’ then find all of the information you can, including calculators, to determine the best course of action possible. Remember that you are on your own and have no one to blame but yourself if you screw it up and the IRS disagrees with you. If you are working with a Financial Advisor that can run some calculations for your, have them checked by a CPA who specializes in SEPPs, especially if you are dealing with a lot of money. If you are a Financial Advisor doing SEPPs, then establish a relationship with a qualified CPA to either confirm your calculations or do the job for you, and then agree to work with you for any IRS challenges.
Jim2004-08-29 11:41, By: Jim, IP: []

L2: Question on Annual RecalculationJust a brief follow-up on Jim’s post and this merely represents my opinion. Any IRA custodian who says that annual recalculation is (or isn’t) acceptable is really offering advice tax or legal, take your choice. The IRA custodian/trustee in reality has only two jobs: 1) to distribute the funds requested in a timely fashion; and 2) to properly code the 1099. I see each SEPP that is initiated using one of our custodial agreements. If I agree with the initial assumptions and the on-going operation of the SEPP, our accounting department assigns a code of 2′. If I don’t agree we merely assign a code of ‘1’ and allow the individual to file the appropriate forms with their 1040. We also don’t do any calculations. I will however, tell individuals and agents where they can find calculators that I know will produce the right results. And now for the real question. Would I use a code of 2′ for a SEPP that did the proper recalculation on an annual basis? Answer_ yes, I totally agree with The Badger. 2004-08-29 16:36, By: Gfw, IP: []