Changing 72t payments
I have a prospect who is currently taking out $4,000/mo ($2,000 from one IRA and $2,000 from a second IRA)based on 72t). His current advisor claimed to use the annuitiation method on his payments. If the client wants to change the AMOUNT that he is withdrawing, can he take less per month with out blowing up the 72t? Or is the payment that was calculated the only amount that is available? I know he can change his method to the RMD method once in the 60 month window…but if he were to be allowed to change the amount under the current method (say $4,000 to $3,000/month) will that count against his one time change or is that flexible to do how often he wants as long as he doesn’t take more than the calculated amount?
Permalink Submitted by Alan Spross on Thu, 2008-08-07 21:07
There are only two ways to change the amount of the 72t:
1) Either use the RMD method from scratch or make the one time switch to the RMD method as you indicated. The one time switch will reduce his payment considerably unless the IRAs have had huge investment gains that inflated the account value.
2) Use the recalculation method from scratch. Warning – this method is rather complex and calls for a new recalc each year, which substantially increases the chance of making an error in the consistency of the annual recalculations. I don’t recommend it.
Therefore, in his case, he is probably stuck with the 4,000 per month unless he wants to make the one time switch. And if he does that, it is also recommended that he do it on a calendar year basis and not try to do it midyear. Depending on the dollars already distributed, he MIGHT be able to make the switch retroactive to 1/1/2008. You would have to do the calcs using the 12/31/07 account balances to determine what the RMD amount would be and compare it to what he has already taken out, which is probably 28,000………