10-percent tax penalty

[Guest BTCISP1969]

For a client who wanted to take early withdrawals, I had prepared projections based on a series of substantially equal periodic payments to avoid the 10-percent tax penalty. The projections under each method i.e. minimum distribution method, amortization method, and annuity method, differ. What the client now wishes to do is to start receiving a specify amount of distributions. Is it possible for the client to do this?

[Guest SHP]

I don't believe that you may modify the amount of the distribution for a period of 5 years or until the participant has attained age 59 1/2 if later.

I believe there is an exception for participant's death or disability.

[Guest SHP]

I believe that I may have initially misunderstood the question. Re: the determination of substantially equal payments to avoid the 10% penalty the participant may use the minimum distribution method under 401(a)(9)disregarding the participant has not reached his required beginning date, the annuity factor method of calculating a level payment by dividing the account balance by an annuity factor where the factor is based on reasonable mortality and interest rates, or by amortizing the account over the life or joint life expectancy using a reasonable interest rate. I don't believe that a specific $$ is acceptable.

If participant sepatates from service after age 55 of course there is no penalty for QRP.

[Mary Kay Foss]

I have clients who have a specific dollar figure in mind when taking the SEPPOLE route to avoid penalty. What I advise is that they divide up an IRA or rollover an amount from a qualified plan that will provide the dollar figure they need. If they want to maximize the payments we use Method 3 and a high side of reasonable interest rate and the oldest reasonable mortality table. It takes some trial and error but you can figure out the beginning amount of the fund needed to generate the amount the client requires. Method 1 cannot be used in this way but either 2 or 3 will allow you to get the payment that you need. All of this is allowed because you need not aggregate IRAs or 401 plans for this purpose.