Sonny’s comment….

L1: Sonny’s comment….Nickname: endgame Date: 4/19/2002 9:41 PM Subject: RE: SEPP movement Message: gfw- Could you please elaborate a bit more on Sonny’s comment as follows?”Date: 4/19/2002 1:26 PM Subject: RE: SEPP movement Message: But don’t you think the best plan is the annuitization that prevents your SEPP to go busted since it always adjusts to your life expectancy, account balance, and interest rate? I can’t imagine why anyone would choose amortization if he/she is 100% in the stock market. What if the stocks go down in half or go no where for the next 20 years?”I am not quite sure how the annuitization method prevents one’s account to go “busted” if the payout is fixed e.g., per annum, but the growth within the account reserve is not “guaranteed” to last through the life expectancy. In other words, let’s say I invested a certain amount in stocks and we have a 1929 style crash. I’m obviously missing something here that’s well, obvious, as my understanding is that the payout amount remains “fixed” and doesn’t “adjust” regardless of interest rates, remaining account balances, or life expectancy.Thanks in advance.endgame2002-04-19 21:43, By: endgame, IP: [127.0.0.1]
L2: RE: Sonny’s comment….>> since it always adjusts to your life expectancy, account balance, and interest rate.Sorry – In and of itself the amortization method doesn’t do this. However, a properly designed plan (using assumptions in at least two previously issued PLRs and) using the amortization method would do this. If the payment is always recalculated on the previous 12/31 (for example) balance – the plan would never go “bust” since the payment would never equal 100% of the fund. The only way the plan could go totally bust is if the balance drops below zero. The IRS addressed this point in the final Minimum Distribution [MD] Regulations and my guess is that they would buy the same argument for a SEPP.2002-04-19 21:52, By: Gfw, IP: [127.0.0.1]

L2: RE: Sonny’s comment….gfy- Did you really mean “amortization” in the first sentence or “annuitization”?endgame2002-04-19 22:19, By: endgame, IP: [127.0.0.1]

L2: RE: Sonny’s comment….endgame, the key thing with annuitization method is that the annual payment is not fixed and equal – it changes every year on your SEPP anniversay date. You would need to re-compute your payment based on your life expectancy (one year older), your up-to-date account balance, and the current applicable federal interest rate. Since the annuitization formula can yield any possible number, zero can be one of them. Actually, SEPP might not be a good term to use under annuitization method.2002-04-19 22:59, By: sonny, IP: [127.0.0.1]

L2: RE: Sonny’s comment….Thanks Sonny– That does shed some light on that as I didn’t realize it can be readjusted on the anniversary date. Speaking of which, is it your opinion that under the annuitization method that the anniversary date does not necessarily mean it has to be as of 12/31 of the previous year but rather can also be the actual date on which the SEPP becomes effective, e.g. 7/01/02 for instance?Thanks.endgame2002-04-19 23:54, By: endgame, IP: [127.0.0.1]

L2: RE: Sonny’s comment….If you go into the distribution calculator (the link is on the left), and if you choose Yes for Recalculate Life Expectancy and Annuitization for Method to Illustrade near the bottom, and then click Calculate, you’d see that the table shows different payments for every year.On the plan’s start date issue, I think you may choose any date as long as you stick with it annually. Obviously, the date that you start withdrawing the money must come after the date you choose for “year-end” balance. For instance, if you choose May 1st as your start date, then you could use May 1st balance, May’s Applicable Federal Rate, and your current age to compute for the annual payment. Once this plan is set up, you may withdraw the money anytime from now till April 30 next year.Gfw and Badger: please let me know if I’m wrong here??? 2002-04-20 00:28, By: sonny, IP: [127.0.0.1]

L2: RE: Sonny’s comment….This where you need to use care – the PLR’s to date used 12/31 as a recalculation date and January are the adjustment date. While you can’t rely on a previous PLR (unless you are the taxpayer that it was issued to) you also shouldn’t change the facts and think that you have the same situation. If you change the facts, you should probably get your own PLR.2002-04-20 05:27, By: Gfw, IP: [127.0.0.1]

L2: RE: Sonny’s comment….I think there is some confusion here. First, the concept of “annual recalculation” can be used (or not used)in conjunction with either the amortization or annuity methods & there are PLR’s and IRS information letters to that support both. Second, in the early years some PLRs were issued that allowed partial recalculation; e.g. recalulate with an updated account balance but hold your age and interest rate constant from the prior year. These are now dead as of mid-2000 when the IRS issued an information letter that made it explicitly clear that taxpayers electing to use “annual recalculation” must do so updating all three factors (amount, age & interest rate), must do so using an external reference interest rate; e.g. something like 120% of MT/AFR; and must do so on the same date in all succeding years.Third, since the beginning of time on the whole issue of SEPPs there have been 12 PLRs issued on “annual recalculation” of which 8 have been favorable. Looking at the 8, 7 of the 8 have all had valuation dates of 12/31/XX. Only one, #2000-20063, had a valuation date other than 12/31/xx & this one had a valuation date of 4/30/xx. In this one PLR the taxpayer is measuring on 4/30/xx using annual recalculation and immediately after recalculation taking the full annual amount as a withdrawal. TheBadger2002-04-20 09:22, By: TheBadger, IP: [127.0.0.1]