Regarding 72t fixed amortization method, I know that the interest rate used cannot exceed 120 percent of the federal mid-term rate. But is there a minimum rate that must be used? I don't see any such stipulation. If a client is trying to back into a monthly cashflow amount, can he use a 2% rate to determine the fixed amortization amount when the mid-term applicable federal rate is 4.95% ?
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The rule says you use a rate that is less than or equal to 120% of the Federal Mid-Term rate. It says nothing about a minimum rate. So I would say you can go below the AFR if you want. Keep in mind the purpose of the rule is to limit your ability to take it out in a lump sum prior to age 59 1/2. Or to take it out sooner than your life expectancy. So obviously taking it out over a longer period of time is OK with IRS, which is what will happen when you use a lower interest rate.
This web site: http://www.dinkytown.net/java/Retire72T.html provides an online calculator to help calculate this amount.Last edited by Bees Knees; 05-26-2006, 08:00 AM.
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