Subst Equal payments addendum

[susieq]

Message on the 9th resulted in 2 responses. Thank you. 57 1/2 year old in 2006 has about $412,000. totallyin her IRA. Some of the accounts were here husband's. He died in 2005 and his IRA's were transferred to her. She has 6 mutual funds and 8 - 9 CD's. All held by tp - not in a single brokerage account.

Considering her age, would $20,000. annually be enough for the next five years? Which table do I use to determine the amount to be withdrawn beginning in 2006 ? Can she take the CD's out and then start withdrawing from the mutual funds? I was concerned that on this system you had to specify particular accounts and only withdraw from them.

[Roland Slugg]

Consider this

Dear susieq

If she hasn't merged her husband's IRA funds with her own, she can withdraw his funds without penalty. Even if she has, if she can undo the commingling, she may still be able to accomplish this.

Regarding the "substantially equal payments" option the Code and Regs give little or no guidance regarding how to make the calculations, and IMO guidelines or safe harbor rules are badly needed. I wouldn't take a round $20,000, but would make an effort to apply the rules using the single life or two life tables.

[jainen]

on the Internet

>>the Code and Regs give little or no guidance regarding how to make the calculations<<

That's not exactly true, because the IRS has published extremely detailed instructions on how to do it--I think it's something with a lot of authority like a Revenue Ruling. There are four allowable methods using three IRS life expectancy tables. They are explained in the pubs, and it's easy enough to find 72(t) calculators on the Internet.

[Unregistered]

Look at IRS Notice 89-25, Q&A-12 which discusses the methods.

This notice was modified by Rev Ruling 2002-62 which, among other things, gave guidance to what interest rate could be used in the calculations.

New York Enrolled Agent

[Roland Slugg]

IRS Notice 89-25

Thank you NYEA. Your posts on this board are always very helpful. The notice you referred to does, indeed, describe three alternate methods.

Note to susieq: If your client uses one of the three methods, she must continue it for at least five years. Otherwise the 10% penalty will be imposed on the distributions taken in 2006 and 2007, i.e. before she turns 59½. Rev Rul 2002-62 (Section 2.03(b)) allows a specific, one-time, non-penalty-triggering change in the method used.