72t Calculation
Assume mid term rate allowed is 5.79% for annual Fixed Amortization calculation. It’s my understanding that the calculation rate can be anything below 5.79% to provide client annual amount closest to their cash flow need. So if using 5.55% on closest month end IRA value to distribution date such rate (ie: 5.55%) can be used, just cant go over 5.79%. These rates are from last year just trying to confirm rate can be lower just not higher for conversation with client’s tax preparer.
Permalink Submitted by Alan - IRA critic on Tue, 2025-02-04 18:21
Correct, the rate can be lower. .24% is not much of a difference, but lowering the rate by a much larger amount would not be beneficial compared to using the highest rate, which produces a larger distribution per dollar of account balance. If that distribution is not needed, before the plan starts, the IRA can be partitioned by direct transfer into an account with the ideal account balance for the plan and another IRA outside the plan which can be used for emergency needs without busting the plan.