Which 2 months to use for interest rate table

L1: Which 2 months to use for interest rate tableThe 2002-62 Ruling says this about the interest rate:
“(determined in accordance with 1274(d) for either of the two months immediately preceding the month in which the distribution begins)”
My question is that I plan on starting a SEPP with annual distibutions and the first distribution (a fullyears worth)starting this month (November 2002). Which 2 months from the table of rates can I choose from, (11/1/02, 10/1/02) or (10/1/02, 9/1/02)? Also, I plan on using the 10/31/02 balance as the account balance. Does this (the balance date)effect which month I use for interest rates? Thank you for your help. This site is fantastic.
Jay2002-11-19 12:55, By: Jay, IP: [127.0.0.1]

L2: Which 2 months to use for interest rate tableHello Jay:
There is good news in your future. If you look to Revenue Ruling 2002-62; it says, in part: “for either of the two months immediately preceding the month in which the distribution begins.” Thus, in your case, one would logically look to September & October of 2002 for the applicable federal rates.
However, and here is good news, you can ignore this language in RR 2002-62 and the ruling in its entirety as it does not become mandatorily effective until 1/1/03. You are designing and commencing your SEPP program in 2002; therefore the ruling is inapplicable.
Instead, you can look to Notice 89-25 for interest rate guidance, which says: “at an interest rate that does not exceed a reasonable interest rate on the date payments commence.” This is considerably more liberal language & one of the primary reasons RR 2002-62 was issued. Conventional wisdom has interpreted this language to mean a rate that does not exceed the spot rate for 120% of the long-term applicable federal rate (5.89% for October, 2002) or some blended average of recent rates (which might get you into the 6% – 6.5% range). Conversely, 120% of the mid-term AFRs is 4.51% and 4.16% for Sept & Oct, respectively.
TheBadger
wjstecker@wispertel.net2002-11-19 13:30, By: TheBadger, IP: [127.0.0.1]

L2: Which 2 months to use for interest rate tableSorry for the test post, but I am having some trouble with the forum and lost a long post.
Thanks for the quick reply. Even though it is not required I intend to make my plan compliant with RR 2002-62. Based on that I am still a little unclear as to how to select the date to use for account balance. Based on what I have read it appears that one can use the latestmonth end balance (prior to initial distribution) or latest year end balance or something in between. Am I correct in assuming that using the latest month end balance is the most conservative? In my case the latest month end balance is about 20% less than the year end balance.
I am fortunate that I don”tneed to maximize my distribution. I can live with any combination of interest rate and account balance date. My main goal is to eliminate (or minimize) future problems with the IRS. So I am looking to be as conseravtive as possible with this SEPP. I feel pretty comfortable with picking the Sep. or Oct. interest rates because the ruling is quite clear. What is your recommendation as to what account balance valuation date to use? Thanks again for your help.
Jay2002-11-19 14:14, By: Jay, IP: [127.0.0.1]

L2: Which 2 months to use for interest rate tableIf you want to go by the new rules, then I would suggest that you use the previous month end balance since this is the true current value of the account.
2006-62 states in part that the account balance be “… determined in a reasonable manner based on the facts and circumstances”. You should have no problem justifying the actual value as of the previousmonth.2002-11-19 14:21, By: Gfw, IP: [127.0.0.1]

L2: Which 2 months to use for interest rate tableI have an immediate annuity quote that was run in October (qualified rollover from my pension plan). The specifics are:
Annuitant: Male, age 57
Joint: Female, age 55
Single premium: $479,123.04
Monthly payment $2,512.04 over our joint lives.
IRR: approximately 5.36%
How do the new rules (specifically the 120% AFR) affect the annuity. Will this type of payout be allowed after Jan 1?

Thanks for your help.2002-12-03 13:12, By: Scott, IP: [127.0.0.1]

L2: Which 2 months to use for interest rate table
Without filing for a PLR, no one really knows – the answer maybe yes, but that is a maybe.
IRR typically stands for Internal Rate of Return which can only be calculated after the death of both annuitants – where did you get the quoted IRR without knowing when you will die?
A better question to ask is why would you want to lock yourself into an immediate annuity at age 57, especially with interest rates at record lows. You are trading control of the capital for the promise of a monthly income. And unless you have some other guarantees, if both you and your spouse die that day after you acquire the annuity, you have absolutely nothing – now what”s your Internal Rate of Return?2002-12-03 13:48, By: Gfw, IP: [127.0.0.1]