Feb 1274(d) Rates
The Feb SEPP Rate (to be used in April) is now below 2% (1.98%). If they keep plummeting, by mid-year, the RMD calulation may produce a higher payment, with the chance of going up when we recover from the lack of consumer confidence.
Permalink Submitted by Alan Spross on Wed, 2009-02-04 22:59
It would have to fall to -0- to equal the RMD method in the initial year, but the gap between the two has been cut in half over the last year.
There could be a trap here by the low rates encouraging the use of recalculated amortization plans. If future rates rise, these plans would generate a higher payout than the RMD method. However, doing a new calculation in uniform fashion for every year of the plan substantially increases the risk of both calculation and execution error. You have the added component of a new interest rate each year in addition to the age and balance factors of the RMD method.
Another growing risk in starting these plans is the pressure to go back too far to get an account balance high enough to generate the needed payout. RR 2002-62 refers gives an example of 6 months, however it also states that the balance be a reasonable estimate of the current balance. If you use a Sept balance for a current plan, the balance will be so much higher than the current balance, it likely would not be considered a “reasonable” estimate by the IRS. Therefore, it is dangerous to set a time table for how far back you can go to determine your beginning SEPP balance.
Permalink Submitted by Al Fry on Thu, 2009-02-05 02:38
Another note: not everone is comfortable with the re-calc methed.