Substantially Equal Payments

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L1: Substantially Equal PaymentsI retired in 2006. I was born 7/26/1950. We rolled my 401 and Pension into an IRA and split it into two different IRAs and set up a systematic monthly withdrawal that began in 9/2006. We have taken equal monthly payments beginning in 9/2006. We calculated the payments using up to 120% of the mid term rate, but did not exceed and used the approximate value of the rollover at that time. When using one of the other calculators on this site we found that our payment will have to run through 9/1/2011. Is it possible to make any adjustments to this amount prior to that date and should we be okay on how this was established?2009-01-20 14:48, By: Clark, IP: []
L2: Substantially Equal PaymentsClark,It’s correct that your final monthly distribution would be in August, 2011 as that would apparently be the 60th monthly distribution. If you have reason to reduce your distribution now, you could make the one time switch to the RMD method using the 12/31/08 balance for the 72t accounts. Be careful, however that this does not reduce your distribution too much. There is no way to increase the distribution unless the account balance has about doubled under the switch, and in this market that is highly unlikely.There is not enough info posted to know for sure if your plan would pass an IRS inquiry with respect to the original calculation. The use of “approximate rollover balance” could create a problem, and it is also unclear whether your plan includes both IRA accounts or only one of them. You should have a copy of an account statement for a date between June and August, 2006 to document the acccount balance you used. Your interest rate can be lower, but cannot be higher than the higher of the July or August, 2006 rates, and you can check this site to verify those rates. If there is not a major error, you can probably reconstruct your documentation now to back into what was a proper calculation in Sept, 2006 because of the interest rate flexibility, but you should document the calc in case of an inquiry.Since you are now into the 4th calendar year of the plan, and if you took out the correct annual amount in 2007 and 2008, the only potential problem should be documenting your original calculations to make sure they fall within the tolerances permitted. This may raise further questions, and if so feel free to post them.2009-01-20 19:37, By: Alan S., IP: []

L3: Substantially Equal PaymentsI only used the one account and used the value of the IRA rollover less what we moved to a separate IRA to have in case of an emergency. We were going to consider lowering our distribution, but wanted to make sure that this was possible. The interest rate that was used was within the time period suggested. With the account balance we would have documentation with statements to give the value that was used. If it slightly under the actual value to establish the amount is that going to be okay or does that create a problem? Also, can we use less than 100% of the account balance to determine our Substantially Equal Payments? Example: if my balance was 500,000 on my 7/31/06 statement, could I use $475,000 to determine my SEPP? Thank you for your reply.2009-01-20 19:46, By: Clark, IP: []

L4: Substantially Equal PaymentsYou cannot use a value less than what you can document on a copy of an account statement within no more than 6 months of your start date. You could probably go back no farther than 3/31/06, but best to select a later date if possible. Fortuneately, the solution in your case is to lower the interest rate below the published rate enough to back into the amount you have been taking out.In other words, to change your documentation from use of an estimated to a firm accountbalance, you can use the 500,000balance with a reduction in your interest rate to the point where you generate the amount you have been taking out anually. You can do this because you can lower the interest rate, but you cannot increase it above the published rate. If the reverse were true, and you wanted to use a higher balance, then you would have busted the plan.From the calculators here, you can figure what the interest rate is that you must use to get the same dollar amount from a firm account balance statement within a reasonable period prior to your first distribution.2009-01-20 22:37, By: Alan S., IP: []