Question on interest rate

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L1: Question on interest rate
New SEPP plan. DOB: 12/27/1960 Date of First Distribution: January 16th, 2018
Am I correct in assuming I do not have to use the maximum interest rate (in this case, 120 percent of the mid-term rate of 2.54 percent) for my calculation? Can I plug in something lower to match the amount I am budgeting for distribution?
2018-01-04 18:18, By: Dano, IP: []

L2: Question on interest rate
If you are worried about having too high of an income for tax purposes by using the prevailing 120% rate or just want a smaller withdrawal for other reasons, it has been suggested on this forum to approach the issues as follows.
Split your IRA into two separate IRA accounts with one of the accounts having the “proper” amount of money to fund your desired withdrawal rate at the latest 120% of mid-term rates. The 2nd IRA account will have whatever is left over and will NOT be part of your 72T SEPP.
The benefits of this approach is that you’re controlling the amount of money you will be withdrawing to exactly what you need now and more importantly the 2nd IRA you’ve set up (the one that is not part of your 72T) can later be converted to a 2nd 72T SEPP if you end up needing additional money for some unexpected reason in the future. There is no restriction on setting up another 72T with a different IRA. This approach keeps you from having your money tied up in just one IRA that is not “fully utilizing” the 72T option.
Note, if you just leave your IRA as is and use a lower interest rate, you can’t make changes without a bust (there are exceptions that allow for changes – death, disability, etc…, or reversion to Minimum Distribution (RMD) if you used amortorized or annuity methods initially).
Your IRA custodian should be able to easily work with you to split your IRA so that you have two IRAs, one of which you will use to fund your 72T SEPP at the amount your desire.
2018-01-05 00:51, By: Tanko, IP: []

L2: Question on interest rate
Yes, you can.
However, if you elect much of a reduction you might have been better off to transfer the amount of your IRA balance out to a different IRA that would leave the amount in your SEPP account needed to hit your budget using the max rate. You would have a higher emergency use IRA outside the SEPP account to use for insurance against busting the SEPP. Of course, to do that now you would have to postpone your first distribution until the changes and new calculation were made.
Another option is to NOT reduce the rate and use the extra distribution itself as a safety margin since you will not be able to increase your distribution for 5 years without busting the plan.
And one last option. Start with the max rate now, and if you later find that you do not need that much and want to reduce your distribution, you could make the one time switch to the RMD method later on in the plan.
2018-01-05 00:59, By: Alan S, IP: []

L3: Question on interest rate
Thanks to both of you for your kind responses. My wife and I have separate IRA’s and were initially going to take distributions from each. However, we have to be careful to not take too much, as we would jeopardize our ACA subsidy and end up owing thousands of dollars at tax time next year. So, we’ll use the max rate and take a distribution from just one IRA to start with and see how that works.
2018-01-05 20:31, By: Dano, IP: []