The maximum is 120% of the IRS published AFTR Midterm Rates for either of the past two months. Use the annual rate for annual payments, the monthly rate for monthly payments. One can use a lower rate, but not higher. For more info, go to http://72t.net.
Permalink Submitted by Alan Spross on Fri, 2007-08-10 05:28
Al,
I’m splitting hairs here, and noticed that some 72t calculators do suggest use of monthly rates, but “72tonthenet” never refers to them, possibly because since they are lower than the annual rates, they could be elected along with any other lower rate that is a positive number.
However, for those who tap their IRA monthly using annual distribution figure/12, I have never heard of the IRS maintaining that use of the annual 120% mid term rate exceeded the maximum rate allowed. That would seem to indicate that the monthly rate is only optional for those taking monthly payments.
Permalink Submitted by Chris Odle on Fri, 2007-08-10 20:39
Thanks for the reply. A follow up for the question: a person retiring from age 57 to 59 that starts 72t distributions must continue the substantially equal payments for 5years. Can they reduce their distribution at age 62 by the amount of their social security payment without penalty?
And
Since the calculations are figured using life expectancy and total IRA value, will reducing their distributions when they draw social security affect the calculation?
You can do whatever you want after the 60 months are up, since you’ll be over age 59.5.
Responding to the monthly rate question, in a conversation with the author of 2002-62, he stated the monthy rate must be used if payments are to be taken monthy. I always publish the monthly rate to our folks, and suggest they use it, however most calculators are annual, still giving an incorrect number. To my knowledge, no one has ever been challenged by using the annual/12. But I like to play is safe with this one.
Permalink Submitted by Alan Spross on Fri, 2007-08-10 23:53
Al, given the small difference in rates and the IRS getting mean and nasty lately on 72t plans, playing it safe with the lower rate is probably a wise decision.
Chris,
Re your follow up question, a 72t should be avoided if at all possible past age 57 since there are only a couple years to go to be free of penalty. However, if there is no other choice and someone starts one at 58, and SS benefits are claimed at 62, the 72t payment cannot be reduced because of the SS or any other additional income. It MUST continue until the 5 year period is satisfied. If the 72t provides enough income, perhaps the SS benefits should be delayed until after the 5 years is up. That will increase the benefit by 7% or so for life.
Permalink Submitted by [email protected] on Thu, 2007-08-09 14:34
The maximum is 120% of the IRS published AFTR Midterm Rates for either of the past two months. Use the annual rate for annual payments, the monthly rate for monthly payments. One can use a lower rate, but not higher. For more info, go to http://72t.net.
Permalink Submitted by Alan Spross on Fri, 2007-08-10 05:28
Al,
I’m splitting hairs here, and noticed that some 72t calculators do suggest use of monthly rates, but “72tonthenet” never refers to them, possibly because since they are lower than the annual rates, they could be elected along with any other lower rate that is a positive number.
However, for those who tap their IRA monthly using annual distribution figure/12, I have never heard of the IRS maintaining that use of the annual 120% mid term rate exceeded the maximum rate allowed. That would seem to indicate that the monthly rate is only optional for those taking monthly payments.
Permalink Submitted by Chris Odle on Fri, 2007-08-10 20:39
Thanks for the reply. A follow up for the question: a person retiring from age 57 to 59 that starts 72t distributions must continue the substantially equal payments for 5years. Can they reduce their distribution at age 62 by the amount of their social security payment without penalty?
And
Since the calculations are figured using life expectancy and total IRA value, will reducing their distributions when they draw social security affect the calculation?
Permalink Submitted by [email protected] on Fri, 2007-08-10 22:05
You can do whatever you want after the 60 months are up, since you’ll be over age 59.5.
Responding to the monthly rate question, in a conversation with the author of 2002-62, he stated the monthy rate must be used if payments are to be taken monthy. I always publish the monthly rate to our folks, and suggest they use it, however most calculators are annual, still giving an incorrect number. To my knowledge, no one has ever been challenged by using the annual/12. But I like to play is safe with this one.
Permalink Submitted by Alan Spross on Fri, 2007-08-10 23:53
Al, given the small difference in rates and the IRS getting mean and nasty lately on 72t plans, playing it safe with the lower rate is probably a wise decision.
Chris,
Re your follow up question, a 72t should be avoided if at all possible past age 57 since there are only a couple years to go to be free of penalty. However, if there is no other choice and someone starts one at 58, and SS benefits are claimed at 62, the 72t payment cannot be reduced because of the SS or any other additional income. It MUST continue until the 5 year period is satisfied. If the 72t provides enough income, perhaps the SS benefits should be delayed until after the 5 years is up. That will increase the benefit by 7% or so for life.