72t calculations…
At the age of 42 a client started a 72t program in 1997 and proceeded to withdraw the same calculated amount year after year with the same company (72t withdrawal will be in place until 2013). Late 2000 the client transferred her IRA to another company. When the new company started the income plan they reviewed the 72t calculation that was done in 1996 and since the account with the new company opened in 2001 they needed to re-calculate the 72t. My understanding was that a 72t calculation was to be in place for 5 yrs or until the client turned 59 1/2, whichever is longer no matter how many times the account gets transferred “OR” we have a one time opportunity to change from the standard 72t to the RMD calculation. My question is…when you transfer your IRA that you are currently taking a 72t withdrawal from to another company, can the new company recalculate your 72t?
Permalink Submitted by Anonymous (not verified) on Wed, 2009-11-04 17:54
You are absolutely right about your statement. I can only think of these reasons why they would recalculate it:
1. Just to verify the amount as a customer service initiative.
2. If they are in any way providing this service, they are responsible and must make sure the calculation is correct. That in itself is difficult because they would need proof of the 12/31/1996 balance.
*Changes to the 1099R instructions about coding these as “01” verses “02”, depending on if the custodian is involved in the calculation did no start until years later.
Also RR 2002-62 released in 2002.
I would ask them why.
pmk
Permalink Submitted by Alan Spross on Wed, 2009-11-04 18:35
In 2000 the IRS issued an information letter approving annual recalculation as a sub method of either the annuitization or amortization methods. After 2002-62 there were several letter rulings reaffirming the conclusion in the information letter. In all these findings, annual re calc requires updating all 3 variables on the same date every year, and re calc must be elected in the first year of the plan, not at some point later on.
Therefore, there is absolutely nothing to support a one time recalculation. Based on the 2000 ruling, the IRS might be inclined to allow a recalculation to occur if the calculations continued in every year since 2001, but apparently this is not what happened here. Technically, the plan was busted in 2001.
Why is this matter surfacing at this time? Has the IRS raised a question here?