Valuation date for SEPP

L1: Valuation date for SEPPRev Ruling 2002.62 indicates that choosing a valuation date within the calendar year for an RMD distribution SEPP is valid. Other sources indicate that regardless of distribution method, a valuation date within 6 months is safe. If a SEPP is started Nov 30, is a valuation date of Jun 30 safe even if using amortization distribution method? Thanks in advance for any thoughts. 2008-11-10 12:12, By: beech+golfer, IP: [69.77.149.15]
L2: valuation date for seppi don’t really think the date selected is that critical. i think the more critical element is whether the value used is reasonable.for example, if your account is worth 40% less now than it was 2 months ago, is it reasonable to use a calculation based on the missing 40%? what 2002-62 looks for is a reasonable valuation date with the time period that will be used to determine the initial distribution.2008-11-10 12:20, By: gfw, IP: [127.0.0.1]

L2: Valuation date for SEPPUpon further research at the IRS web site, they seem to imply that regardless of distribution method selected, as long as the valuation date is within the calendar year, it is acceptable. Anyone have any experience with a real world challenge to this?2008-11-10 12:21, By: beech+golfer, IP: [69.77.149.15]

L2: Valuation date for SEPPWhile you may be able to use any valuation during the year, is that a wise thing to do? That’s what GFW is asking, and I echo his question.Assume you had a $1,000,000 IRA 9 months ago, age 52 and using the Amortization method, your annual distribution amount would be $56,837, of 5.68% of your initial amount. Now you are ready to start your SEPP Plan and the IRA value has dropped 40% to $600,000. If you withdrew the $56,837 per year from your reduced IRA account, you would be withdrawing at the rate of 9.47%, which is a heavy withdrawal rate. Can you be sure you will have a return of significantly greater than 9.47% for 8 years? If you took this course, then within a few years you would be changing to the RMD method to save something from your IRA which would be disappearing rapidly.Good luck.Jim2008-11-10 13:12, By: jim, IP: [70.167.81.119]

L2: Valuation date for SEPPValid point, but my situation is such that I can live with a 9% withdrawal rate for 5 years since I have a retirement income starting after that time.2008-11-10 16:17, By: beech+golfer, IP: [69.77.149.15]

L2: valuation date for sepp
here is the wording for 2002-62…(d) account balance. the account balance that is used to determine payments must be determined in a reasonable manner based on the facts and circumstances. for example, for an ira with daily valuations that made its first distribution on july 15, 2003, it would be reasonable to determine the yearly account balance when using the required minimum distribution method based on the value of the ira from december 31, 2002 to july 15, 2003. for subsequent years, under the required minimum distribution method, it would be reasonable to use the value either on the december 31 of the prior year or on a date within a reasonable period before that year’s distribution. just be ready to justify you stance and your assumptions. if i was the irs reviewer, you would be paying a penalty as i wouldn’t think the account balance was a reasonable representation of the actual value when you started. if so, you do have an option… you could get a good attorney and go to tax court – not a cheap experience – maybe that’s the estimate that you should be looking for. i also can’t believe that a trustee/custodian will give you an exempt code so get ready to file form 5329.with that said, you can do whatever you want. gfw2008-11-10 16:47, By: gfw, IP: [127.0.0.1]

L2: Valuation date for SEPPWhile I understand your argument, I am curious if you know of any written authority, IRS or other, that interprets “reasonable” in the context of value as opposed to time. I have been unable to find any such authority, either on the IRS web site or in published cases. All published info seems to look at date and how far back one can go from date of initiation. raise the issue because let us assume a 10% market drop 1 week prior to starting a SEPP. Under your argument, using the value from a week prior to start would arguably be unreasonable. 2008-11-11 13:10, By: beech+golfer, IP: [69.77.149.15]

L2: Valuation date for SEPPI have not seen it intrepreted either way – the statement is so general that it could be intrepreted either way, or both. The real question is really whether you are willing to take the chance – What constitutes reasonable?It is really up to the IRS to determine and for you to convince them otherwise.Or you could get a PLR and then you would have something expensive, butdefinitive.2008-11-11 18:44, By: Gfw, IP: [127.0.0.1]

L2: Valuation date for SEPPOne added point about 2002-62.The reference is to an RMD method calculation. The RMD method contains some inherent connections to a calendar year valuation regimen such as is used for RMD requirements. Therefore, it is quite possible that the 6 month look back period cited in 2002-62 for an RMD calculation may not be viewed in the same manner for an amortization or annuitization calculation that produces the same distribution amount for the entire plan term. That said, 2002-62 was issued following a similar period of bear market drops that amounted to nearly 50% and much more if you were unlucky enough to be in tech stocks.What this all amounts to is subjective judgement of an IRA auditor as to what is reasonable and that is inherently subjective. Perhaps 25% is “safe”, because we lost that much in 3 weeks last month, but if 25% is exceeded youmay begetting into what someone in the IRS thinks is not reasonable. Perhaps you can use a more realistic starting value, and then offset that by taking a full year distribution for 2008 instead of just two months.2008-11-11 20:13, By: Alan S., IP: [24.116.165.60]