72 t and IRS 120% of fed mid term rate

[Guest DDDlump]

Any ideas on how a retiree that wants to do substantially equal payments to avoid 10% penalty can maximize monthly income. With the new 120% of fed mid term rate, in light of rates so low, monthly payouts are almost unliveable!

[Mike Preston]

Get disabled.

Get divorced.

Go back to work at a company that allows rollovers from IRA's. Then quit. Assuming the individual is over age 55, distributions from the plan might be exempt from the excise tax.

The last idea is not as farfetched as the first two.

Have you tried using the RMD tables in lieu of the annuity rates method?

Remember that the 120% rate is not cast in concrete. It is merely an example of a rate that was deemed to satisfy the requirement of being "not too high" when it was approved in a PLR. RR 2002-62 doesn't specify an interest rate, does it? What do you think the highest rate can be and still not be greater than a reasonable rate? How lucky do you feel?

[Guest Derelict]

From 2002-62

© Interest rates. The interest rate that may be used is any interest rate that is

not more than 120 percent of the federal mid-term rate (determined in accordance with §

1274(d) for either of the two months immediately preceding the month in which the

distribution begins). The revenue rulings that contain the § 1274(d) federal mid-term

rates may be found at www.irs.govtax_regsfedrates.html.

-D

[Appleby]

Au contraire Mike

Revenue Ruling 2002-62 states “The interest rate that may be used is any interest rate that is not more than 120 percent of the federal mid-term rate (determined in accordance with § 1274(d) for either of the two months immediately preceding the month in which the distribution begins)”.

Using the RMD tables will not produce a higher amount than amortization annuitization. Remember the basis of Revenue Ruling 2002-62 was to allow retirement account owners to switch to the RMD method so that the mount would be less.

Getting divorced may mean giving up at least half of the assets.

DDDlump, an alternative is to ask the IRS permission to use a higher rate. Of course, this will cost. PLRs costs at least $600.

[Mike Preston]

Good point, Appleby and Derelict. I was reading a comment by RIA which highlighted the fact that the methods in the new Revenue Ruling were safe harbors but that other methods might still be acceptable and nterpreted that to mean the interest rates were also safe harbors, but that others might be acceptable:

"Just as the distribution methods in Notice 89-25, Q&A 12 were intended to serve as safe harbors, i.e., as examples of substantially equal periodic payments, and not as the only distribution methods that satisfy the substantially equal payment exception, so apparently are the methods in Rev Rul 2002-62 intended to be safe harbors. The guidance in Rev Rul 2002-62 is intended to “modify” the provisions of Notice 89-25, Q&A 12, and provide the same methods, but with clarifications and elaborations"