Some Answers To Open Questions on RR 2002-62

L1: Some Answers To Open Questions on RR 2002-62Approximately two weeks ago, I published “A Whole New Set of Rules” regarding Revenue Ruling 2002-62; at the end of which I posed a variety of open questions. Since then I have had the opportunity to discuss these issues with members of the guidance committee who wrote the ruling. The bad news is that what follows are oral representations by the Service and are therefore not binding and certainly not law. The good news is that an intelligent discourse took place with the authors of the ruling; e.g. the font of Service knowledge and perspective on the issues. As a result, anyone intending on implementing any of the following should seek professional assistance; in certain circumstances potentially filing another of those dreaded private letter rulings.

(1) Is UP-1984 as a mortality table really dead? Most likely; however, there is now a conflict between the Rev. Rule 2002-62 & IRC Reg. 1.401(a)(4)-12 which says it lives on.
According to the Service, UP-1984 is dead for 72(t) purposes. They will take care of the regulation conflict at their leisure.
(2) How does a taxpayer perform a mid-year method change from the amortization or annuity method to the RMD method? There are a number of mathematical proration possibilities all of which are allowed; however, the new ruling does not give us any specific guidance.
The Service intentionally used the language “at any time” to provide maximum flexibility, at least in their eyes, during the conversion from an old method to the RMD method. Accordingly, the Service sees any mid-year conversion that is rational as acceptable as long as the sum of the distributions made under the old method during the year of conversion exceed the RMD distributions as if the RMD method had been adopted as of 1/1 of the year of conversion.
(3) As distinct methods or as sub-methods, did the amortization / annuity method using annual recalculation survive or die? Most likely, yes; however, we are not sure at the moment. Again, we have an unresolved authority conflict.
Most likely the annually recalculated amortization and annuity methods conceptually survive. The Service’s current answer at the moment is that they see these methods (or sub-methods if you like) as outside the boundaries of the new revenue ruling. Further, they have encouraged me, and others who have inquired, to seek out a client wishing to use the annual recalculation methodology commencing in 2003 in concert with the amortization or annuity methods in order to submit a private letter ruling on the topic. The Service has indicated that they will be disposed to rule positively on such as request as long as the remainder of the methodology complies with the new revenue ruling; e.g. the interest rate assumption does not exceed 120% of MT/AFR and the new mortality table is used.
(4) Are SEPP plans with cost-of-living-adjustments (relative or fixed) still permissible? Again, most likely yes; however, we need some additional guidance from the Service.
Again, the Service’s position is that COLAs are outside the boundaries of the new revenue ruling. Further, they see no problem with implementing a fixed or relative COLA in concert with the fixed amortization or annuity methods as long as the COLA is reasonable.

(5) Can a taxpayer performing a mid-year method change to the RMD method put back some of the distributions already made year-to-date under their old method? Most likely no, as there is statutory language that prohibits this.
Unfortunately the answer is NO. Once the money is out it stays out irrespective of IRC 402(c)(3) which permits “rollovers”. The Service saw no way to permit putting some distributions back into the IRA, most likely during the conversion year, without opening a loop hole that would subject to material abuse.

William J. Stecker
wjstecker@wispertel.net
2002-10-19 12:05, By: TheBadger, IP: [127.0.0.1]

L2: Some Answers To Open Questions on RR 2002-62
It will indeed be interesting to see what, if any, variations the IRS allows. I have a hard time understanding why they would release a Revenue Ruling only to immediately allow it’s modification through a series of PLRs.
If they were thinking of allowing recalculation of the annuity and/or the amortization methods, why wouldn’t they just have included that in the ruling instead of… “and the resulting annual payment are determined once for the first distribution year and the annual payment is the same amount in each succeeding year”. I guess the same question could be asked of the COLA.
The way that they state “same amount in each succeeding year” seems to preclude either recalculation or COLA.
I’m not real find of the new ruling – they could have very easily offered additional solutions like recalculation of the other two methods, but they instead chose a very limited scope.
I hope you are right, I guess only time will tell.2002-10-19 15:05, By: Gfw, IP: [127.0.0.1]

L2: Some Answers To Open Questions on RR 2002-62I’d like to followup on item 2. If a person is receiving monthly payments under the amortization or annuitization method and makes a mid-year switch to the rmd method would it be appropriate to stop payments altogether until the next year if the person had already received more than the rmd method would provide? Would it be equally acceptable to continue to receive monthly payments but have them based on the rmd method for the rest of the months of the year? Is one way more correct or appropriate than the other?2002-10-23 11:38, By: WLE, IP: [127.0.0.1]

L2: Some Answers To Open Questions on RR 2002-62Badger
In answer to question 2, second sentence, I can not follow the math you describe. Please show an example.
Thanx
Pete2002-11-24 09:20, By: PCK, IP: [127.0.0.1]