switch from amortization to minimum distribution
L1: switch from amortization to minimum distributionI”ve had an amortization 72(t) SEPP that started annual paymentsAugust 31, 2004. I”d like to switch to the minimum distribution method, but would have a huge penalty if I don”t do it correctly after all these years.
For my original calculation, I used the 12/31/03 balances ofthose IRAs alloted to the SEPP. To switch now, would I use the 12/31/07 balances of those same IRAs plus the latest July (for August 31 payment), 120% mid-term rate for the calculation? I”ve only 2 more required years to go before I”m 59 1/2, & no longer need the higher amount, but I don”t want tomake an expensive mistake at this point.
As I understand it, I”d then need to recalcuate again next year using the 12/31/08 balances plus the then-current 120% rate.
Thanks much for your clarification!
DCJ2008-07-24 13:52, By: dcj, IP: [22.214.171.124]
L2: switch from amortization to minimum distribution
The RMD method is inherently a calendar year method, although it still may be possible to make the switch mid year. However, I would not recommend it as it may invite a raft of questions, and it is not possible to accurately predict the outcome.
That leaves you with making the change next January, or better yet retroactive to 1/1/08 IF the numbers will permit. The RMD method does not use an interest rate, so you can forget that part of it. To see if you can make the change effective 1/1/08 compare the amount you have already distributed with the calculation you get using the 12/31/07 account balances of your “SEPP universe” of IRA accounts. Use the age you will attain this year for the divisor and then select one of the 3 tables to use. If the annual amount falls under the amount you have already distributed, you can easily do the change for 2008. If you have taken out somewhat more, you can roll back all or part of a distribution you took in the last 60 days to equal the new SEPP amount.
Here is where the table comes in. With a choice of 3 tables, if you use a joint table and the amount is too low to make the switch this year, then try the single life table which will result in a higher distribution. You can change the joint vrs single life expectancy you elected in 2004, but once you select the new table, you must stick with that table and use the prior year end balance until the plan ends. If you can”t generate the numbers to make the change this year, then do it effective January, 2009 and use a joint table to generate a lower amount.2008-07-24 16:34, By: Alan S., IP: [126.96.36.199]