Question regarding balances……

L1: Question regarding balances……If I were to use the year end balance as of 12/31/01 for calculating payments going forward under the annuity method with payments beginning on 9/1/02, would the IRS “care” if my portfolio had dropped $50K since 12/31/01? In other words: Year end balance on 12/31/01: $700KRemaining balance when payments begin on 9/01/02: $650KFrom a standpoint of prudent planning, I realize this would normally place additional negative stress towards ensuring enough funds were available during the entire SEPP duration. In this particular case however I have a solid basis to believe that this is a temporary situation and that future returns will make up the difference.Thanks…endgame2002-08-05 23:59, By: endgame, IP: [127.0.0.1]
L2: Question regarding balances……My answer would be yes since the 12/31 account balance does’t represent an accurate picture of the account and would make for an “unreasonable” assumption.If you are just starting the plan, then you should probably use the 7/31 or 8/31 balance.2002-08-06 04:32, By: Gfw, IP: [127.0.0.1]

L2: Question regarding balances……Gfw just gave you an answer of “YES” meaning it will make a difference. I will take the other, more liberal side of the coin, and say “NO”. Let’s separate the issues of prudency and IRS position & deal only with the later for a moment. The IRS has said repeatedly that it looks only to the interest rate; “using and interest rate that does not exceed a reasonable interest rate on the date payments commence” (Notice 89-25 as well as numerous PLRs). Thus, by omission, the IRS really does not care what opening balance you use, as long as the measurement date is within or applies to the same tax year of the distribution (and there have been several PLRs where the measurement date and the date of first payment are several months apart) but does look to the reasonableness of the interest rate in very close proximity to the first payment; particularly when using the annuity method and even more so when performing annual recalculations.All this being said, is it prudent? In most cases, probably not; however, I can easily devise taxpayer circumstances where this tactic makes perfectly good sense, particularly in the first year.TheBadgerwjstecker@wispertel.net2002-08-06 08:02, By: TheBadger, IP: [127.0.0.1]