72T interest rate
When establishing SEPP under sec. 72t, do we now have a choice of using 5% or 120% of the applicable Federal mid-term rate, or do we have to use the lower of the two?
When establishing SEPP under sec. 72t, do we now have a choice of using 5% or 120% of the applicable Federal mid-term rate, or do we have to use the lower of the two?
Permalink Submitted by Alan - IRA critic on Tue, 2022-06-14 21:11
You would use the highest, which will be the 5% rate until the 120% rate exceeds that amount. But you can always use a rate lower than the highest rate, but that is not the best way to lower the distribution. The best way is to use the highest legal rate (currently 5%), and if that produces a distribution higher than you need, then partition the IRA into multiple IRA accounts by direct transfer, with one of those accounts having a balance that produces the amount needed using the 5% rate. The other IRA accounts are not part of the plan, but could be used to start a separate SEPP if necessary. To be clear, you can use the lower rate, but you are not required to, and should probably not use it.