Why use the Minimum Distribution Method?

L1: Why use the Minimum Distribution Method?Why use the Minimum Distribution Method?
$334,800.00
1] Minimum Distribution Method
$163,306.08
2] Amortization Method
$165,324.00
3] Annuitization Method

Money Example: Say you want 1000 a month from your SEPP account. Using the reverse calculator you get the above amounts.

The question is: why would someone rather tie-up the larger amount.
Just use one of the smaller amounts and keep the rest in a separate account!
334800 minus 163306 = 171494
334800 minus 165324 = 169476
You could later do another SEPP with that balance if you needed to!

The question is: why would someone rather tie-up the larger amount?
Why use the Minimum Distribution Method at all?

Thanks Confused2007-04-20 09:32, By: Confused, IP: [67.150.33.127]

L2: Why use the Minimum Distribution Method?Good afternoon Confused:
Prior to the CY 2000 meltdown of the stock market, aka the “bursting of the internet bubble,” 72(t) guidelines forced people into taking a set amount of money out of their accounts with no way to make corrections. While the stock market was going up, it was not a problem. But after the aforementioned market drop in 2000 thru 2002, people had to continue taking the same dollars out of their accounts while the overall valuation was plumeting, with the very real possibility of emptying the account. There was no “escape valve” to avoid this problem. ThenRev Rulling 2002-62 came along and created the RMD methodwhich allowed people to make a one-time change from the methods requiring the larger distribution amounts to a smaller distribution amount.
So that”s the answer to your question.
Jim2007-04-20 09:46, By: Jim, IP: [24.252.195.14]

L2: Why use the Minimum Distribution Method?Another consideration is taxes. I cannot say for sure what your situation is, but in my case, we receive $3,000 a month from a SEPP. That”s $3,000 a month we have to pay federal and state taxes on. If you”re lucky enough to be in the 15% fed bracket, that helps, but once you get up to the 25% bracket – – OUCH! That HURTS! Plus, we have to cough up another 6% to our state govt…. it starts to add up!Along with all the other considerations involved with setting up a SEPP, you should definitely look at how your SEPP plan will impact your situation with the IRS. You may very well find that the minimum method is the most desirable……2007-04-20 15:08, By: Stegy, IP: [70.243.152.210]

L2: Why use the Minimum Distribution Method?”Confused” may be asking why someone would opt for the RMD method while initiating a new plan.
One thing this strategy offers is a good chance of increasing payments while avoiding the more complex annual exposure of recalculation. A pure COLA is not allowed. Under the RMD method, the potential increase in distributions is triggered by:
1) Rising account balance as long as the investment gains exceed the distribution taken.
2) A larger divisor each year due to higher ages
3) A potentially even higher divisor available if joint tables are used and an older beneficiary is substituted when added funds are needed. But can the oldest beneficiary be trusted to disclaim if the owner died? This is risky business!
Looking at this in total, it”s really not the way to go. There are better options as posted frequently using fixed methods and an emergency IRA account outside the 72t plan.2007-04-20 20:00, By: Alan S., IP: [24.116.66.98]

L2: Why use the Minimum Distribution Method?Thanks for your answers:

By Jim: (Prior to the CY 2000 meltdown of the stock market, aka the “bursting of the internet bubble,”)
Very good point! The type of investment in the SEPP account is an important point to remember. We are back to the risk to reward debate or Asset Allocation, all bonds verses all stocks or some ratio.
A SEPP maybe a good place for a Bond Fund only!

By: Stegy: (Another consideration is taxes.)
Yes I understand that I will pay Federal and State Taxes, my state 3%. I am trying to get the most from the 15% bracket and not go into a higher bracket. You might call this Tax planning! Not may people know that Social Security becomes taxable too!

By: Alan S. Confused” may be asking why someone would opt for the RMD method while initiating a new plan.)
You are correct. I was trying to understand the basic strategy for each method! Just to keep it simple for a new SEPP in 2007.
This is what I came up with!

Comparison of the 3 withdrawal methods:

SEPP General Rules:
Duration: At least 5 years or till you are 59.5, which ever the longest
Example: Age 50 = 50 to 59.5, that is 9.5 years
Example: Age 58 = 58 to 63 (age plus 5 years minimum), that is five years
Payments: At least once a year.
Examples: Monthly, quarterly, semi-annual, and annual
Taxes: Normal Federal and state taxes
Example: You will pay taxes like any other investment
No 10% Penalty is setup correctly

Comparison of the 3 withdrawal methods:

Minimum Distribution Method = RMD = Required Minimum Distribution
Smallest annual amount received = least amount in your pocket
Must re-calculate each year = the total annual amount changes year to year!
Largest deposit = the most money to set-up

Amortization Method = Fixed Amortization
Larger annual amount received = larger annual amount in your pocket
No re-calculate each year = the total annual amount never changes
Smaller deposit = less money to set-up

Annuitization Method = Fixed Annuitization
Larger annual amount received = larger annual amount in your pocket
No re-calculate each year = the total annual amount never changes
Smaller deposit = less money to set-up2007-04-22 08:44, By: Confused, IP: [67.150.33.127]