Written arrangement required between taxpayer and plan custodian?
L1: Written arrangement required between taxpayer and plan custodian?Would like to take annual distributions out of an IRA and am 53 years old. Can I avoid the 10% early distribution penalty if each year (until reaching 59 1/2) I calculate the annual distribution myself using the Required Minimum Distribution method and simply telephone the administrator requesting that amount or does an individual have have a written plan agreement stating date of distribution, frequency, etc., ?2009-04-30 13:31, By: jw, IP: [220.127.116.11]
L2: Written arrangement required between taxpayer and plan custodian?The first step is tocall your IRA custodian and determine if they will allow telephone distributions from the account, or if they require you to submit either a Letter of Instructions (LOI) or one of their distribution forms. Some custodians will allow telephone instructions for very limited reasons and amounts.
My recommendation for your RMD method is to complete their forms, designate it as a 72(t) exception reason for the distribution, ask them to do the calculations each year, then distribute on a specified date in say early March. Then you can crosscheck their calculations in early January before the distribution and resolve any differences. By doing this you will have the benefit of the computerized systems of the custodian to help you keep track of what’s going on with your SEPP Plan and avoid an inadvertent error on your part, like forgetting to take care of telling the custodian to make the distribution one year. With a plan designedto last 7 years, the odds are you will have a problem without the benefit of the custodian’s automated systems.
Why do you want to start a plan using the RMD method? The recommended method on this board is to split out an amount from your primary IRA into a new IRA account and use the Fixed Amortization Method and the maximum 120% rate to distribute the dollar amount you will need each year. Use the calculators on this site to determine your amounts. This gives you two options: (1) the ability tochange the SEPP Plan from Fixed Amortiztion to RMD at a later date if you need to reduce the distribution amount and (2) the ability to make “penalty withdrawals” from the Non-SEPP Plan IRA for emergencies and not “bust” your SEPP Plan. By starting with the RMD method you tie up more money than necessary in your SEPP Plan, andit limits your optionsto solvefuture problems. Since your planwill run for 7 years, the odds are you will have some kind of problem during this time period.
Jim2009-04-30 15:02, By: Jim, IP: [18.104.22.168]