Stub Year calculations

L1: Stub Year calculationsMy question concerns the stub year payments at the begining and end of a 72t distribution. How do you calculate the amountof the withdrawal? Ifmy wifewere to begin a 72t distribution on July 12, 2007 how would it be calculated. We are anticipating using about 3.7%. I know that the percent is going to probably be less than the 120% of mid term rate but we feel that would be a safe withdrawal rate. 2006-10-16 21:54, By: Rick H, IP: [148.78.243.123]
L2: Stub Year calculationsFor the initial stub year, you should use an account balance for the end of the month of March, April, May or June. If you decide to partition the IRA into SEPP and non SEPP accounts, then you would useobviously not use a balance prior to the partitioning of the accounts.
Calculate the full year SEPP distribution amount. You can either use that full year distribution for the first stub year or pro rate it based on the initial payment date. For a July 12 start date, you would use 50% of the annual indication if you pro rate. Do not use something in between 50% and 100% or you are courting trouble.
Having an emergency IRA outside the SEPP is a safety valve that can save you from busting the SEPP. To accomplish that, using a rate closer to the max will enable you have a lower account balance in the SEPP account and therefore a higher balance in the other IRA(s) for emergencies or for starting a supplement SEPP later on.
Remember, using a lower interest rate just means that you need a higher account balance to fund your desired payment. It does not reduce your gross distribution or make either IRA last longer. The balance of assets is only a function of the gross amount you withdraw and the investment results inside the account(s). If you have to liquidate certain shares in your SEPP account, you can always buy them back in the non SEPP account. As for the gross amount you will need for living expenses over the term, that requires some study. If you withdraw too much you could waste tax dollars in greater amounts every year than paying a small penalty for an emergency withdrawal from a non SEPP account once or twice over the term. 2006-10-16 23:27, By: Alan S., IP: [24.116.66.98]