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Setting up an IRS 72(t) withdrawal. Will be getting monthly chcks. Here' the question.
Rev. Rule 2000-9 Applicable Federal Rates for February, 2000 has different "Periods for Compounding" Annual & Monthly.
Should I use the AFR "annual" or "monthly" AFR in my calculation??
(*_*)
V
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Ed6713 asks:

<<Setting up an IRS 72(t) withdrawal. Will be getting monthly chcks. Here' the question.
Rev. Rule 2000-9 Applicable Federal Rates for February, 2000 has different "Periods for Compounding" Annual & Monthly.
Should I use the AFR "annual" or "monthly" AFR in my calculation??>>


You would use the annual long term rate as shown in Table 1 of that publication.

Regards..Pixy
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Pixy:

I had this very conversation this last week with one of the actuaries in the Asst. General Counsel's office who was working on a PLR for me. The responses I got were:

1. As to using the annual v. quarterly v. monthly rates they gave me a garbled, kind of "I don't really know" and "We really don't care" kind of response.

2. As to which rate to use; they are pushing the Mid-term rate over the long-term rate. Of course the MT rate supposedly runs for transactions up to 9 years; so I pushed back & said what if we are talking about a SEPP program for a 50 year old who will need 10 years to complete; they then conceded to the LT rate.

(Actually I think that there is huge argument that I didn't use on the phone; that irrespective of the remaining term in the SEPP program itself; that's not the whole term of the program in the eyes of the SEPP receipent; instead the whole term is the total remaining life expectancy of SEPP receipent which is somewhere North of 25 years in all cases; therefore I think I could always say that the LT rate should always be used. Your thoughts?)


3. I also quizzed them on why there are a lot of PLR's using 120% of XYZ rate. They flat out didn't know, but were willing to let them stand, as well as new PLR's requesting same as some sort of concession to the taxpayer to design some flexibility; e.g. most taxpayers don't think about fracturing their IRA's and adopting different methods for differrent accounts at different times. Instead, most taxpayers think in terms of one account & one SEPP stream. In this case the only variable is the interest rate because amount & life expectancy are fixed.

TheBadger

Just a thought --- I don't think that the AGC (EP&EO) office is on top of the §72(q)&(t) ball. I think they are much more oriented towards approving complex plan mergers/terminations along with holding a tough line on aggressive charitable remainder trusts; e.g. the big interesting stuff. Our issues on §72(t), again I think, are a bit of a pain the butt for them.

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TheBadger writes:

<<I had this very conversation this last week with one of the actuaries in the Asst. General Counsel's office who was working on a PLR for me. The responses I got were:

1. As to using the annual v. quarterly v. monthly rates they gave me a garbled, kind of "I don't really know" and "We really don't care" kind of response.>>


LOL. I guess in the big scheme of things it doesn't really cost them much in terms of tax dollars collected. Still, seeing as they look at the amount taken annually, it seems to me the annual rate matches that measurement. IMHO neatness counts. :-)

<<2. As to which rate to use; they are pushing the Mid-term rate over the long-term rate. Of course the MT rate supposedly runs for transactions up to 9 years; so I pushed back & said what if we are talking about a SEPP program for a 50 year old who will need 10 years to complete; they then conceded to the LT rate.

(Actually I think that there is huge argument that I didn't use on the phone; that irrespective of the remaining term in the SEPP program itself; that's not the whole term of the program in the eyes of the SEPP receipent; instead the whole term is the total remaining life expectancy of SEPP receipent which is somewhere North of 25 years in all cases; therefore I think I could always say that the LT rate should always be used. Your thoughts?)>>


I concur with you, and use the same rationale. SEPP are based on remaining lifetime, not just the longer of five years or until attainment of age 59 1/2. Those using SEPP have a much longer life expectancy than 9 years. Hence, the long term AFR is the one I would opt for every time, and I think that usage can be successfully defended despite the AGC's preference for the mid-term rate.


<<3. I also quizzed them on why there are a lot of PLR's using 120% of XYZ rate. They flat out didn't know, but were willing to let them stand, as well as new PLR's requesting same as some sort of concession to the taxpayer to design some flexibility; e.g. most taxpayers don't think about fracturing their IRA's and adopting different methods for differrent accounts at different times. Instead, most taxpayers think in terms of one account & one SEPP stream. In this case the only variable is the interest rate because amount & life expectancy are fixed.

TheBadger

Just a thought --- I don't think that the AGC (EP&EO) office is on top of the §72(q)&(t) ball. I think they are much more oriented towards approving complex plan mergers/terminations along with holding a tough line on aggressive charitable remainder trusts; e.g. the big interesting stuff. Our issues on §72(t), again I think, are a bit of a pain the butt for them.>>


LOL again. I'm sure they are a pain. After all, when all is said and done there just ain't that many tax dollars involved in SEPP in comparison to many of the other issues they're involved in. IMO SEPP issues distract them from bigger pots, hence the responses you received.

Best..Pixy
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Thank you Pixy & Badger. Been researching this, and other 72(t) info. for weeks.
Concerning which AFR to use, I figured I'd direct go to the horses mouth, in this case the IRS. Used their e-mail tax law question (TaxHelp@aus.swr.irs.gov. Posed the exact question to them I posted on this Board. Their response "February AFR's are available. See Rev.Rule 2000-9. As to which rate to use, I cannot say" My response was "#(_(%%^&* if you cannot say, who (^&)+()+^ can say!!!"
Not much help but I was overly optimistic expecting help.
Any for this service I pay my taxes?
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Be very careful with the use of the IRS's services. One, it is not binding. Two, according to a recent survey; their service levels materially increased to 75%.

If you are confident of what you are doing with §72(t) and are not contemplating anything too aggressive; then please do proceed. If not, get some professional help if for no other reason than to be able to rely on that professional's E&O coverage if something goes wrong.

TheBadger
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