Separating IRA to Begin first distribution
L1: Separating IRA to Begin first distributionYesterday, I completed and submitted paperwork to accomplish details below. I woke up feeling I had a need to post this to make sure it will be acceptable:
I opened my IRA in 2002, but have never taken a distribution.
I will be 55 years old in 2008.
I have performed a reverse calculation from this siteto determine the dollar amount requiredfor a $50,000 annual distribution. I used the value on 1/31/08, the MTR of 4.22 as of 2/1/08. My distributions will be done taken quarterly, beginning March 2008.
I submitted paperwork to transfer ALL BUT the dollar amount required(for the $50,000above) to a new IRA. I also submitted paperwork to begin quarterly distributions of $12,500 from the original IRA AFTER the transfer has been completed.
Here”s my concern, the assets are mostly invested in mutual funds. I determined which ones to transfer based on close of business 2/25/08. In otherwords, if my IRA account value requirement is $645,679.23, I determined 5 mutual funds that had a closing value of $600,000 as of 2/25/08 and $45,679.23 cash that would stay in my IRA and then listed the rest of the mutual funds and some cash to be moved to the new IRA.
Obviously by the time everything gets processed, those values will have changed. Is it sufficient enough that I have proof of assumptions that were used? In otherwords, the date of my letter (printout from my brokerage account) of instructions to the custodian as to what is suppose to be transfer?
2008-02-27 06:24, By: lcs, IP: [126.96.36.199]
L2: Separating IRA to Begin first distributionHello LCS:
99% very good work. 1% left. You need to actually value the remainderman SEPP IRA after the transfers out have occurred & recalculate your annual withdrawal. If necessary, move a few a bucks back if some stuff dropped in value.
2008-02-27 06:43, By: TheBadger, IP: [188.8.131.52]
L2: Separating IRA to Begin first distributionThank you so much for your reply.
One more question, I am running out of time getting this all done in time for my 3/15 distribution. If I can “catch” and make one change today- is there any reason I can not raise the cash to stay in my original IRA from like the $45,679.23 to $100,000 to assure that cushion (that would give me an IRAvalue in a”range” vs.exact- thereby avoiding needing to hold off until after its done and make the adjustments then??
In otherwords, I can understand that it”s critical to not go below the $ amount stated is required for the amount ofdistribution I want each year, but is there a problem with being a little high, assuming I”m not falling below the minimum distribution amount calculation? Am I being clear as mud?2008-02-27 06:55, By: lcs, IP: [184.108.40.206]
L2: Separating IRA to Begin first distributionBadger is right. Move some money back to get the $50K payment threshold to work, and recompute after that move. It may not be exactly $50k, but that is the problem with how you did this. If you move back a bit more than you need, you can always lower the interest rate used in your calcs to force it to $50K, but that requires more decimals than on the 72t calculators on most websites, so you need to do it in excel type calcs. This is why in earlier posts I have always suggested, as have many others, that, in splits, the NEW IRA is the one that you do the computation for, so that the starting amount in the NEW IRA is the base to use for your calcs, and you do the calcs after the move. You now found out that there was never a time when a “snapshot” of your old account had the balance used for your calcs, and that is where the problem lies. Unless your custodian is being difficult, I think you can tell them to make the first payment as soon (in March or even April for FEB rate)as they can, (but to wait for your new calcs) but then make future ones on that requested 15th of the other 3 qtrly months you wanted. That should not be a problem. I just changed a SEPP from 2 payments per year to monthly on the 5th of each month in 2008 at Schwab, and it was no problem. In another SEPP, I told them at Vanguard to make the first payment for five months in MAY, then go to monthly after that, to start paying me on the 5th of each month in June. Again, no problem. I think there is more flexibility in the payment date than you think. You don”t want to rush this. The main goal is to get to the end of the year with the exact (from your plan)annual total gross withdrawn. One of my SEPP”s pays out xx,149.00 and I used that number to first get semi annual payments, but made sure it was alsodivisible by 12 with whole penny results, in case I switched to monthly payments. When I changed in 2008, I had no worries, because, atyear end, it always adds up to the same xx,149.00.2008-02-27 10:29, By: Ken, IP: [220.127.116.11]
L2: Separating IRA to Begin first distributionThanks again for the feedback. I am not as concerned about the date of the first distribution as I am totally wrapping my thoughts around all of this. I thought I had this all clear and now I”m swimming through too much research/reading I”ve been doing.
From what I”m seeing, it appearsthat I can not go ahead and put a little “cushion” cash in the IRA I wanted to start the 72t before the first distribution? What is my goal? No to have too little? Can I have “too much”? Or, am I understanding that:
1) When doing a reverse calculation – the actual value of the IRA being used for 72thas to be EXACTLY worth the $645,679.23 (amount the reverse calculator said I need for my $50,000)? Actual value based on what date? Is it reallytrue that basically, you can”t really do a specific distribution amountunless there is nothing but “cash” in the account?
How does one ever figure out a specific dollar amount of a distribution they desire if the account value is going to be ever changing from assumption used, date of calculation and actual date of splitting the IRA”s?
2)If I can stop the presses – can Itake my $1,200,000 IRA – Keep $200,000 original, move $1,000,000 ( /-) to a new IRA, and set up distributions of $50,000 per year?The calculators show a minimum of $33,000 to maximum of $55,000 (rounded numbers obviously). or – do I HAVE to take of the 3 calculated numbers to the their penny?
In the end, I have $1,200,000. I am 55 years old. I want to take an exact amount of $50,000 per year for 5 years.
Thank you so much!2008-02-27 13:55, By: lcs, IP: [18.104.22.168]
L2: Separating IRA to Begin first distributionLCS,
If you had a “do over”, you would have transferred a balance over that was close to (and since it is invested and could change each day, maybe a little more $$ than desired) to that the IRA figure listed in your last posting that would yield the $50k per year, and once in theNEW IRA, then using the value on the date it hit the new IRA, (which you shd be able to print out from new custodian), you go to the regular calculator and see if it comes out to your $50k per year. If not, live with the slight difference, and compute the annual payment. If you might EVER want monthly payments, make sure you tweak DOWN the Max interest rate (in your case from 4.22) so it comesout to a number that is divisible by both 4 and by 12 with no fractional cents, to make it easy for the custodian (and for you!) Then, you give those results to the custodian as your plan for the SEPP, and they can set it up. Here are some whole dollar annual amounts near $50k that work when divided by 4 or 12: $49,968, 49,980 49,992 50,004 50,016 50,028 50,040Play with the interest rate (below 4.22 if starting in Feb or March) till you find the annual amount that works .If you get close, I believe youcan truncatethe pennies on the annual distribution to a whole dollar amount, but then the sum of all payments for the year have to equal that target you “publish” in your SEPP plan (use the document on this website to detail your plan, and hold on to a copy of it. The other optionis to take the value left in first account after the money was moved, and do the computation on that amount, and live withit yielding a few bucks less than $50k per year. Follow same rounding thing after tweaking –(lowering) the max interest rate to get value you can divide as described above, so it leaves you the optionfor monthly payments in the future, without the custodian”s rounding putting you off your totalat year end.KEN2008-02-27 17:20, By: Ken, IP: [22.214.171.124]