Recalculating Minimal Distribution
L1: Recalculating Minimal DistributionHello,
I am receiving SEPP payments via the minimum distribution method.
My investment is a 10 year IRA CD (guaranteed 3.4% if untouched) invested in a Toyota Motors bond. The interest payment is made semi-annually.
The price of the Toyota bond fluctuates.
If I don’t touch the original principal investment, what do I base next years minimal distribution calculation on?
A. My original principal investment (since I’m not touching it) + any interest gained.
B. The fluctuating Toyota bond value total + interest.
C. Other suggestions?
C.2010-10-27 22:40, By: chris , IP: [18.104.22.168]
L2: Recalculating Minimal DistributionYou base the value on the total balance (market value) as of 12/31 of each previous year and your attained age as of 12/31 of thecalculationyear – that is the only option available. Keep the statement as of 12/31 for documentation.
The amount distributed will most likely increase on an annual basis.
Also remember that the actual interest earned and when it is paid has no impact on the amount of the distribution.2010-10-27 22:57, By: Gfw, IP: [22.214.171.124]
L3: Recalculating Minimal DistributionJust to clarify your terminology here, you do not have a CD, you have a bond in your IRA. Is the bond interest invested in a MM fund in the IRA account? If so, your SEPP calculation each year is based on the total balance in the IRA account for the prior 12/31, ie. bond value plus MM interest. The MMbalance from bond interestin the account may not be enough to meet your annual MD SEPP calculation, and in that case you would have to sell some bond units in order to meet your SEPP calculation distribution.
Please clarify if my assumptions are incorrect.2010-10-27 23:19, By: Alan S., IP: [126.96.36.199]
L4: Recalculating Minimal DistributionHi Alan, thank you for helping.
Let me see if I can explain this a little better than before.
The investment is a 10 year fixed rate (3.4%) IRA cd bought through Vanguard.
I’m guaranteed my principal back at the end, if I don’t make any withdrawals, just as a normal cd works.
The principal was used to buy bond shares of Toyota Finance Co.
The interest being paid on this does go to a MM account within the IRA.
Since it is a fixed rate IRA cd and I am not going to touch the principal, I am wondering if I should base my calculations on my initial principal investment plus the interest earned for that year.
Or, that doesn’t matter, and what ever the total bond value plus interest, equals my calculation input.
In other words, do I base it on a fixed rate cd principal or the bond fluctuation price.
chris2010-10-28 03:07, By: chris, IP: [188.8.131.52]
L5: Recalculating Minimal DistributionYour response makes no sense. You apparently bought something thru Vanguard Brokerage.
You bought EITHER a 3.4% CD in your IRA, or you bought bonds issued by Toyota Finance Co. If you look at your statement from Vanguard Brokerage for your IRA account, then respond what it says. Maybe you have 2 investments.
Regardless, the amount of your initial investment(s)is immaterial. Since you have elected the “recalculation method”, then you recalculate each year based upon the preceding 12/31 TOTAL VALUE remaining in the account. Each year the account will receive interest income, and will make distributions based upon the required calculation.
You cannot have a situation where you “will not touch the principal”, unless the interst income each year exceeds the required distribution, which is a better situation than having the required distribution exceed the interest income, in which case you might have to sell some of the investment, unless you have some uninvested cash to cover any shortfall.
Are you sure that you have a SEPP 72-T, or are you talking about a traditional IRA “Required Minimum Distribution” after reaching 70 1/2 ?
We could respond better if you gave us your date of birth, date of initial distribution, balances as of 12/31 of each year, interest income each year, and distributions each year. The “doctors” on this site cannot diagnosis the situation without “examining the patient”.2010-10-28 03:33, By: dlzallestaxes, IP: [184.108.40.206]
L6: Recalculating Minimal DistributionMy Vanguard statement says its a CD.
Here’s the description given:
TOYOTA FINL SVGS BANK Total Initial Cost =Total Quantitiy of Shares purchased or $1 per share
HENDERSON NV CTF DEP FDIC ACT/365 SEMI
CPN 3.4% DUE 7/9/2020 DTD 7/9/2010 FC 1/9/2011
You described exactly what I am doing in that my interest earned, exceeds the required distribution.
In reality, I’m taking home the interest only, that I’m making off the investment.
I am 46 years old.
I started taking contributions in July of 2010.
If there is any other information you need, please feel free to ask.
chris2010-10-28 05:20, By: chris, IP: [220.127.116.11]
L7: Recalculating Minimal DistributionChris… You keep asking the same question expecting a different answer.
As I previously stated, you base the recalculation on the total balance (market value of the SEPP IRA account) as of 12/31 of each previous year and your attained age as of 12/31 of thecalculationyear – that is the only option available. If the Vanguard statement covers all SEPP assets, then use the previous 12/31 balance of the account which should be the market value.
After the first year, the amount of your initial investment is immaterial – you use the market value of the account.2010-10-28 09:14, By: Gfw, IP: [18.104.22.168]
L8: Recalculating Minimal DistributionPlease clarify your statement …
“In reality, I’m taking home the interest only, that I’m making off the investment.”
Are you “taking home” the entire amount of interest earned or only the SEPP Plan, MD calculated distribution?
If your calculated SEPP Plan, MD distribution amount isLESS THANthe total interest your are earning each year, then you are OK. But if you are taking MORE THAN the calculated SEPP Plan, MD distribution amount, then you have a “BUSTED” plan already.
Jim2010-10-28 13:59, By: Jim, IP: [22.214.171.124]
L9: Recalculating Minimal DistributionJim… Just toclarifyyou previous comment.
He must take the EXACT amount of the minimum distribution calculation, no more and no less. If he is taking interest only and it doesn’t match the annual calculated distribution within $1, the plan is busted. 2010-10-28 14:11, By: Gfw, IP: [126.96.36.199]
L10: Recalculating Minimal DistributionGood morning Gordon:
You are exactly right, and that’s what I was trying to say. The “calculated SEPP Plan distribution amount” and “the interest earned” are entirely different animals. He must take the exact, “calculated SEPP Plan distribution amount” each year. Anything else is a bust.
I am trying to find out if he is taking more or less than the “calculated SEPP Plan distribution amount.”
BTW, how did you like the feeling of “riding out the storm” Tuesday? I understand y’all had one of our “typical, huricane wind events” in the Chicago area. Hope your boat didn’t sustain any damage. Thanks again for lunch and I really enjoyed our visit last month when I was in Chicago.
Jim2010-10-28 14:30, By: Jim, IP: [188.8.131.52]
L11: Recalculating Minimal DistributionHopefully you are saying that you are taking home the exact SEPP distribution per the calculation, which is most of, but not all of, the interest income from the investment. For example, the calculated distribution is $ 19,000 for one year, possibly $ 19,500 another year, and maybe $ 19,250 the following year. Since your interest income is $ 20,000 you are okay because you are distributing the correct amount each year, which is less than the interest income. By the way, if the interest income becomes less than the distribution calculation which might be $ 20,500 some year, thenyou must take some of the accumulated non-distributed income from prior yearsto supplement the income received so as to continue to distribute the exact distribution calculated based upon the prior year-end account balance.
You confused everyone by your initial posting that it was a bond.2010-10-28 15:11, By: dlzallestaxes, IP: [184.108.40.206]
L12: Recalculating Minimal DistributionYes, I am taking home the exact SEPP distribution per the calculation.
I receive a statement from Vanguard each month, which gives me a fluctuation in price of Toyota Finl which is in the form of a bond purchase.
This is what’s confusing me. Hence my question on which amount I should use.
My investment which is a 10 year fixed rate CD, is no longer the same amount on my monthly statements because of the price fluctuation of Toyota Finl. At least that’s how it’s working.
If I don’t touch the principal on the 10 year fixed rate CD, which I haven’t, why do I get a fluctuating monthly total,
which is tied directly back to the Toyota Finl investment.
It’s a CD.There should be no fluctuation on the initial investment amount until the interest is credited (semi-annually), and I won’t reach that point until Jan 0f 2011.
In other words, when I recalculate in January of 2011, why wouldn’t it be based on my initial principal investment + any interest credited + existing money market within the same SEPP account.
As opposed to basing it on the fluctuation price (Toyota FINL) + interest + money market total.
I understand it is supposed to be based on the cumulative total of the SEPP account at the end of the year, I need to know which cumulative amount I should base it on.
2010-10-28 20:20, By: chris, IP: [220.127.116.11]
L13: Recalculating Minimal DistributionIt fluctuates in value with changes in market interest rate – you should have been told that when you purchased the investment.
What you call the fluctuating value is the market value and that is what is to be used. The market value is what you could sell it for at liquidation. What you paid for it has norelevanceto the market value.
Based on your questions and comments, I woulddefinitelysuggest that you talk to your investment advisor. If you purchased the investment without any outside advice, then it sounds like you got exactly what you paid for.
BTW… A brokerage CD would fluctuate in value the same way. If you purchased a CD at a bank, it may not fluctuate in value, but the interest paid is typically lower and there are penalties for cashing out early. 2010-10-28 20:31, By: Gfw, IP: [18.104.22.168]
L13: Recalculating Minimal DistributionChris:
From what you are describing, frankly it is a real puzzlement! I have never heard of any investment like what you are describing … an FDIC insured, bank CD based on a corporate bond. I do not claim to have complete knowledge of every investment vehicle that exists, but this one is a newby!
From what you have described, your IRA is on a brokerage account platform. This is like an empty box and you can put any number of different investments inside it. You have this “CD” and a money market account within the IRA. Income generated from the investment goes into the money market and distributions come out of the IRA brokerage account from the money market account. All is good so far.
Now for yourinvestment. The reason your value keeps fluctuating is that’s how a bond works. The bond has an original “Coupon Rate” of interest when it is sold. Over time interest rates go up and down which drives the value of the bond up and down. As interest rates go up, compared to the coupon rate of your bond, then the value of your bond goes down, and vice versa.
As to the value of your SEPP-IRA for recalculation purposes, take your complete, 12-31-2010 IRA account statement and see what the value of the complete account is. Don’t just look at the CD or MM Fund. Everything within the brokerage account IRA counts. Use that value and the other factors to recalculate your SEPP Plan distribution amount for 2011. Then next year do the same thing with your 12-31-2011 IRA account statement to determine the 2012 distribution amount.
Finally, go back to the broker that sold you this thing and get him to explain what you have. Get all of the literature and prospectus (if it exists) to explain this thing. Then come back and tell us what you found out. It should be a very interesting story.
Jim2010-10-28 21:03, By: Jim, IP: [22.214.171.124]
L14: Recalculating Minimal DistributionThanks Jim,
And to everyone else for the help.
I talked to the Vanguard broker.
It is a 10yr investment CD. If I don’t touch the principal for the duration, I’m guaranteed (FDIC) the initial principal + interest accrued along the way.
The investment is comprised of Toyota Finl Co. bonds.
So, as many have said previously, “base the recalculation on the total value of the account”, using the bond investmentvalue +interest+MM total, not the initial investment total.
chris2010-10-28 21:53, By: chris, IP: [126.96.36.199]
L11: Recalculating Minimal DistributionJim…
Fortunately the boat is already in storage for the season.
We had some real winds blow through – pretty steady in the range 45mph to 55mph. The crib which is just off the lake shore had peak winds recorded at about 79mph yesterday afternoon and they were remained peaked at the 65mph to 70mph range for most of 3 hours the afternoon.Definitelya little breezy!
Have a really great day!
2010-10-28 15:27, By: Gfw, IP: [188.8.131.52]
L12: Recalculating Minimal DistributionFor the record, winds starting at 74 MPH is a Category 1 Huricane!
Glad the boat was already out of the water.
Jim2010-10-28 15:39, By: Jim, IP: [184.108.40.206]