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Pension Distributions Calculator v. 6.10 User Manual

1. eeee 12 Files ING Witte hee eaten nit LOG IAN 9 ODEN sace eteat doque atu euet 9 Print i una ets 10 Saee oe e S TRE te 9 Save ASen a aa a 10 Fits Yean eee ees 21 22 Function Keys 4 tee peteret ite inen 7 57 Growth Rate aciei i eee AUR 21 22 H Heading ettet e det edet oues 29 Hl dto ttis 31 Help Mei edu 31 Help System oso eerie e 31 Ent EAMG sfr utis t VI ovens 14 league ER 5 I MECOM Eneee otio oec o daste sis 22 Install dil TL ooo en Irae Ou ab 5 IRS Notice 89225 s oca tle rus 34 J Joint or Single Life Exp 14 Joint Single Life Exp 18 L kast Year 4 o Bees ien uci 21 22 Life Expectancies nete 33 Life Expectancy Factor 24 25 Living Expenses eiectus 22 M MDB saa a 35 Mem Ba s eode eriein 6 Minimum Distribution Incidental Benet 225s cacao eee 35 Minimum Distributions 5 13 41 Minimum Distributions Options 36 Minimum Distributions Report 23 24 IOI Sg cts teeta ir o dto fu Re SAT 25 Mortality Table oed 26 41 N Normal se dace epos pido od qd 42 Notice 89 25 scisco e E gee dettes 34 Number of Copies to Print 30 O OPENS 42 ns ano a vee tcn delete ute 9 Owner s Birth Date 14 P Page MEETS ode coie ditor sese peo tasted 29 Pace INUMDEIS zoo an 30 Pension Fund Graph 23 Plan Balance 17 18
2. sscssssscsssscsssscsssscssssccsscssssesssssecesscsecs 15 Miro tc kD Calculating Pre 59 7 DistributiOns scsccccecccssoscessendsssvsscosocssoosssevsccesacssnecessuseesseatsoosastuncessensssosasenses 17 Pre 59 Distributions Calculator 0c ccccccceccccccccccccsssssssccccccccssesesssesscesssesuseussesseesseees 17 Including Contributions amp Additional Distributions cccsccssscccssssssssscssssccssssssssssssssesees 21 OME UO die ore M t TUN 21 Distrib tiornsz ue oe eT oe e e E AREE ER EN E E Ts 22 BA SUnUANIDULPEETC C esos eSE 23 Reports NC T esas 23 Viewing Reports and Graphs 2 uis e onu ttti o ibo cupis cut riores 23 Current Year Report oe peo Sa beca eet east galletas e seb baa s daunad 23 Distributions Reporte sa 55a si asco tes pcdes vestis ma enu das due IR BA sevens aU PIE D V RE 24 Pre 5912 Distributions RepoOtt seach clock 5 8 Det e eee ocaeca aa ep pectet ponds te dod etiem t 25 Pr 59 Comparison Report 2 2 2 b eei ide E See tiva dee decise 26 View the Pre 5972 Comparnson RepOTL usto ee Hp ESAE HU e MR ISRR MINI I eee EE IER 26 Cl iaDUeE Bioscience a incon ena deri vore alc nana c Printing Reports amp Graphs 4 eere sees ee ee eee eee eene enean eto to ttes teet teste sten setae sete seta seta sea 27 Print Report WINdOW se spe eat inei Sed tune ad aed dede i utc tuo Sc ee n e De D S Sc de 27 Set upa Printer 14 clea ated e
3. Section 72 t of the Internal Revenue Code was added to the Code by the Tax Reform Act of 1986 TRA 86 effective generally for taxable years beginning after December 31 1986 Section 72 t 1 provides for the imposition of an additional 10 tax on early distributions from qualified plans including IRAs The additional tax is imposed on that portion of the distribution which is includible in gross income Section 72 t 2 A iv of the Code provides that section 72 t 1 shall not apply to distributions which are part of a series of substantially equal periodic payments not less frequently than annually made for the life or life expectancy of the employee or the joint lives or joint life expectancies of such employee and his beneficiary Section 72 t 4 of the Code imposes the additional limitation on distributions excepted from the 10 tax by section 72 t 2 A iv that if the series of payments is subsequently modified other than by reason of death or disability before the later of 1 the close of the 5 year period beginning with the date of the first payment and 2 the employee s attainment of age 59 1 2 then the taxpayer s tax for the first taxable year in which such modification occurs shall be increased by an amount determined under regulations equal to the tax which would have been imposed except for the section 72 t 2 A iv exception plus interest for the deferral period Notice 89 25 was published on March 20 1989 an
4. 2002 Final Regulations 36 7 TQ e iod eie as 34 8 SOC NSMILT ies iecore ttt is 41 9 90 M i eint Me 41 A Additional Contributions Contributions ETE 10 AFR Rates eeeeeeee eee 10 PGE c MQ 24 25 Annual sik iced edd ds 25 Annual Amount eene 21 22 Annual Long Term 12046 Applicable Federal Rate Re 41 Aqinualby sese dect eni eti se daste gs 18 Assume Death Occurs 14 B Benef Info eeeeseeemR 14 Beneficiary miseris Deer toecse to deci S 33 Beneficiary s Birth Date 14 Birth Dates 2c eei desis whee 18 Brentmark Software Inc 32 C Calculated Year of Death 15 Calculations MDB 3 n ole eene s eR E 35 Cl OSs eot out RIS 10 Command Buttons uuss 7 Contributions eeeeeeeee 21 25 D Data ENY o s eei sr eoim eoa ot 7 Date rei T ege 30 Display Area eite 7 Distribution Amount 26 Distribution Frequency 18 25 Distribution Method 17 26 Distribution Year ssssse 17 Distributions sess 22 24 41 Brie MORET OCDE E E 22 Distributions Graph 23 Download Latest AFRs button 11 E E inatl uet ttr erred 32 125 0 EMEND NUN 10 Expected Plan Growth 14 18 F File Location
5. be used for the duration of the distributions The second of the three methods the fixed amortization method has been little changed by the ruling The distribution amount is still calculated just once based on amortizing the plan balance over the applicable life expectancy The only change the Revenue Ruling made was to give the plan owner the choice of three life expectancy tables single joint or the Uniform Lifetime Table The third of the three methods the fixed annuitization method requires the distributions to be calculated through the use of an annuity factor Prior to Revenue Ruling 2002 62 this annuity factor had to be calculated from a reasonable mortality table Now only the mortality table from the Ruling can be used As with the amortization method the distribution is calculated only once and that distribution amount is used throughout the distribution period These three methods are all basically the same as they were previously with slightly different details to the calculations The biggest change implemented by Revenue Ruling 2002 62 came in the form of a clarification Previously the reasonable interest rate required by IRS Notice 89 25 was generally assumed to mean the 120 annual long term rate The Ruling establishes that the 120 federal mid term interest rate is the maximum allowable interest rate for the calculation Decreasing the allowable rate by that much in October 2002 a difference of
6. column only appears when the Distribution Frequency is Annual Month This column appears when the Distribution Frequency is anything other than Annual The column displays the month in which each distribution occurs Plan Balance This column lists the total amount of money in the owner s plan in each year Depending on the Distribution Frequency the Plan Balance is calculated differently For example if the Distribution Frequency is Annual the growth is compounded once per year If it is Semiannual compounding occurs twice If it is Quarterly compounding occurs four times per year And if it is Monthly compounding occurs every month Life Expectancy Factor If you select the Minimum Distribution method this 25 Pension Distributions Calculator Distribution Amount Pre 59 2 Comparison Report column lists the life expectancy factors that are used to calculate the minimum distribution To calculate the life expectancy factors the program uses the ages of the Owner and or the Beneficiary applies them to the minimum distribution rules If you select the Amortization method the column also lists a life expectancy factor The program amortizes the plan balance over the life expectancy to arrive at the annual distribution If you select the Annuity Factor method this column displays the annuity factor from the Mortality Table that you choose This column lists the minimum distribution in each year To calculate the
7. options There is no hybrid method or joint term certain method However the new methodology does still have some similarities to the old For example the distribution is still calculated by dividing the previous year s balance by a life expectancy number Here s how it works Situation 1 Owner still alive If the owner is still alive the distributions are based on the divisor found in the MDIB table for owner s age The MDIB table is a published table of joint life expectancies for an owner and a beneficiary who is ten years younger than the owner It simplifies the calculation to only using the owner s age No beneficiary information is needed and no recalculation options are available There is only one exception to this rule for cases involving spousal beneficiaries that are more than ten years younger than the owner Situation 2 Owner dies with nonspousal beneficiary When the owner dies with a nonspousal beneficiary a term certain distribution period is established based on the designated beneficiary s single life expectancy in the year after the owner s death As with the old term certain method this life expectancy is simply reduced by one for each year after it is calculated 38 Chapter 6 Printing Situation 3 Owner dies with no beneficiary This is the only situation where the owner s required beginning date is relevant If the owner dies before the required beginning date and there is no beneficia
8. 1 73 significantly decreases the distributions allowed under the amortization and annuitization distribution methods Revenue Ruling 2002 62 also eliminates the possibility of recalculating distributions when using either the amortization or annuitization distribution methods Recalculating these distributions had started to become popular after it was allowed in a couple letter rulings but the Rev Rul 2002 62 makes it clear that only the minimum distribution method can be recalculated It does allow for plan owners to switch to that method allowing some relief for people whose plans are losing money Another interesting change made by the Revenue Ruling is that distributions must now be calculated for distributions that are occurring right away The Ruling sets the maximum allowable interest rate to be the higher of the mid term rates from the two months prior to the first distribution Obviously this means that we cannot do a calculation in 2002 for a 2003 distribution because there s no way to know what the maximum rate is Unfortunately Revenue Ruling 2002 62 speaks only in terms of annual distributions It does nothing to clear up the question of distributions that are taken more frequently than annual Should monthly distributions be calculated by just dividing the annual distribution by 12 Maybe Annuity factors typically account for frequency of 47 distributions so it would seem that the calculation of the distribution amount
9. 24 25 Pre 59 2 Comparison Report 23 26 Pre 59 7 Distributions 5 17 24 34 Pre 59 7 Distributions Report 23 25 Print M X 10 Print Report Window 27 Pint Setup sigicieeaeatanars 10 27 Printing 5 5 5 ooo o Ve dose Mies 27 28 Private Letter Rulings 44 Program Title siete 6 Program Version Number 6 Q Qualified Pension Plan 14 QUAFLOE IV ec o edo ona CU tee Op P eR 18 R Reasonable Interest Rate 26 41 Recalculate Spouse s Life Expectancy alter Rolloyetu deu cuee tis 16 Report Options uendere 29 REDOLDIS eere a REIR 23 25 Required Beginning Date 35 Revenue Ruling 2002 62 42 ROLOVBE Sd aen Gee sa PROS 15 Roth IRA inneni 33 42 S SANITIS ea e a A ved ticis 9 Semanal 555 qe one o tenes 18 Specify Distributions 10 Spousal Rollover 15 Starting Des ce dreestepi de ee Hir eh 17 Substantially Equal Periodic Payments E 17 T Technical Support 2e 31 Termi Certain ranieri rana 35 58 Chapter 6 Printing DUSCHE at aa a a e a A 30 Title Batrz uunc A ANG 6 Toolbar saan cet eere 6 Type of Plan 14 41 42 U UP 1984 Table e 41 Update the AFR Manager 11 Use Rev Rule 2002 62 17 Use Uniform Life Tabl
10. A 12 of Notice 89 25 for any series of payments commencing on or after January 1 2003 and may be 45 used for distributions commencing in 2002 If a series of payments commenced in a year prior to 2003 that satisfied 72 t 2 A iv the method of calculating the payments in the series is permitted to be changed at any time to the required minimum distribution method described in section 2 01 a of this guidance including use of a different life expectancy table SECTION 4 EFFECT ON OTHER DOCUMENTS Q amp A 12 of Notice 89 25 is modified SECTION 5 REQUEST FOR COMMENTS The Service and Treasury invite comments with respect to the guidance provided in this revenue ruling Comments should reference Rev Rul 2002 62 Comments may be submitted to CC ITA RU Rev Rul 2002 62 room 5226 Internal Revenue Service POB 7604 Ben Franklin Station Washington DC 20044 Comments may be hand delivered between the hours of 8 30 a m and 5 p m Monday to Friday to CC ITA RU Rev Rul 2002 62 Courier s Desk Internal Revenue Service 1111 Constitution Avenue NW Washington D C Alternatively comments may be submitted via the Internet at Notice Comments irscounsel treas gov All comments will be available for public inspection and copying Drafting Information The principal author of this revenue ruling is Michael Rubin of the Employee Plans Tax Exempt and Government Entities Division For further information regarding this revenue ru
11. Options window allows you to create headings format text and layout and include other options for printing All report options are automatically saved so the next time you run the program you don t have to reformat your reports Access the Report Options Window There are two ways to access the Report Options window e On the Options menu click Report Options e Inthe Print Report window click the Report Options button Create a Heading for a Report 36 In the Report Options window click the Heading box 37 Type the text that you want to display at the top of your printed report Format Page Margin e Under the Page Margins heading in the Report Options window enter the Top Bottom Left and Right page margins in inches Format the Text of a Report 38 Under the Fonts heading in the Report Options window click the text you want to format The Font dialog box appears 39 Select the Font Style Size and Effects to apply to the text and click OK 40 Notice that the description of the text in the Report Options window has changed Print for Windows NT e Under the Select Printing Options heading in the Report Options window click NT Style Printing 29 Pension Distributions Calculator Print the Date and Time There are two ways to include the date and time on printed reports e In the Print Report window click the Date and Time check boxes e Under the Select Printing Options heading in the Report Op
12. Section 4974 c of the Code defines the term qualified retirement plan to include an individual retirement account described in section 408 a of the Code Section 72 t 2 of the Code provides that the additional income tax imposed by section 72 t 1 shall not apply to distributions enumerated therein With specific reference to the distribution method at issue in this ruling request section 72 t 2 a iv provides that this tax shall not apply to distributions which are part of a series of substantially equal 49 periodic payments not less frequently than annually made for the life or life expectancy of the employee or the joint lives or joint life expectancies of the employee and his designated beneficiary Notice 89 25 1989 12 I R B 68 March 20 1989 Q amp A 12 provides 3 methods by which a series of distributions may satisfy the substantially equal periodic payments exception of section 72 t 2 A iv of the Code The payment methods described in Notice 89 25 are intended to serve as examples of substantially equal periodic payments and are not the only distribution methods which will satisfy the requirements of section 72 t 2 A iv of the Code Individual A s proposed method of distribution is consistent with the guidelines set forth in Notice 89 25 Accordingly we conclude that distributions in accordance with that method will qualify as being part of a series of substantially equal periodic payments not less freque
13. To calculate required minimum distributions you ll enter data in the portion of the program pictured here By default all fund activity takes place at the beginning of the year This includes required minimum distributions any additional distributions and any contributions To make all distributions from qualified plans occur at the end of the year on the Options menu click Take Distributions at End of Year ror q CO m First Year of Analysis 2002 Type of Plan Year of First Required Distrib 12 31 2001 Plan Balance 10 Ei Expected Plan Growth 8 0000 Is there a Designated Benef Yes Owner s Birth Date 1 1 1930 Beneficiary s Birth Date 1 1 193 lt Beneficiary is Spouse Assume Death Occurs Benef Info i Minimum Distributions Options 2002 Rules 2001 Rules 2001 Prop Regs DO Recalculate Owner s Life Exp D Recalculate Beneficiary s Life Exp wo 6l Specify Distributions _ N Gon Sy Srecity Contributions 13 Pension Distributions Calculator Minimum Distributions Calculation Table of Inputs Input Description Type of Plan Select the type of qualified plan For details on the types of plans that the program considers qualified see Chapter 11 Reference Material Expected Plan Growth Enter the expected annual percent increase of the plan Is there a Designated Select whether there is a designated beneficiary by clicking yes Be
14. and not the software and is otherwise expressly and specifically disclaimed The limited warranty gives you specific legal rights you may have others that may vary from state to state Some states do not allow the exclusion of incidental or consequential damages or the limitation on how long an implied warranty lasts so some of the above may not apply to you Governing Law and General Provisions The License Statement and Limited Warranty shall be construed interpreted and governed by the laws of the State of Florida and any action hereunder shall be brought only in Florida If any provision is found void invalid or unenforceable it will not affect the validity of the balance of this License and Limited Warranty which shall remain valid and enforceable according to its terms If any remedy hereunder is determined to have failed of its essential purpose all limitations of liability and exclusion of damages set forth herein shall remain in full force and effect This License and Limited Warranty may only be modified in writing signed by you and a specifically authorized representative of Brentmark All rights not specifically granted in this statement are reserved by Brentmark 56 Chapter 6 Printing Index Reasonable Interest Rate 18 lt LIO WIeDcutenelaauiaulviseab 42 1 10 Penalty encres 17 34 1987 Proposed Regulations Pre 2001 Rules cnet diete teen 40 2 2001 Proposed Regulations 38
15. annuity factor for a 1 per year annuity for an individual who is 50 years old is 11 109 assuming an interest rate of 8 percent and using the UP 1984 Mortality Table an individual with a 100 000 account balance would receive an annual distribution of 9 002 100 000 11 109 9 002 Minimum Distribution Incidental Benefit MDIB Non spousal distributions will be subjected to the Minimum Distribution Incidental Benefit MDIB requirement see IRC Proposed Treas Reg 1 401 A 9 2 The MDIB requirement states that any distribution occurring after the required beginning date must be less than the distribution that was calculated by dividing the balance of the plan by the MDIB Table divisor found in IRC Proposed Treas Reg 1 401 a 9 2 Q 4 Generally when the non spousal beneficiary is more than ten years younger than the plan owner the MDIB is triggered and results in a joint life expectancy factor regardless of the actual age of the non spousal beneficiary Thus during the lifetime of the plan owner but after the plan owner reaches age 701 there is no difference in the minimum distribution payout amount regardless of whether the non spousal beneficiary is 15 or 30 years younger than the plan owner is The program always removes the MDIB limitation after the plan owner s death Authority for Removal of MDIB after the death of the plan owner is found in IRS Publication 590 and IRC Proposed Treas Reg 1 401 a 9 2 Q amp A Q 3 If t
16. beneficiary refers to an individual If the beneficiary is the spouse of a Roth IRA owner the annual election to recalculate the beneficiary s single life expectancy after the required beginning date is available For non spousal beneficiaries the life expectancy is calculated once and it is reduced by one for each year after the required beginning date Non spousal beneficiaries have additional limitations placed on their calculated distributions e A non spousal beneficiary is not permitted to recalculate his or her life expectancy in each year e For minimum distributions non spousal distribution calculations are subject to the MDIB requirements The program automatically handles both of these additional limitations for you If there is more than one person named as the beneficiary for example children of the plan owner the age of the beneficiary with the shortest life expectancy must be used to calculate the joint life expectancy If a charity or the plan owner s estate is named as the beneficiary there is no designated beneficiary and funds must be withdrawn over the plan owner s life expectancy A trust can also be named as the beneficiary In such cases the life expectancy of the trust s beneficiary can be used to calculate the joint life expectancy If the trust does not meet the following rules then only the life expectancy of the plan owner may be used to calculate distributions e Trusts must be valid under
17. by dividing the account balance by an annuity factor that is the present value of an annuity of 1 per year beginning at the taxpayer s age and continuing for the life of the taxpayer or the joint lives of the individual and beneficiary The annuity factor is derived using the mortality table in Appendix B and using the chosen interest rate Under this method the account balance the annuity factor the chosen interest rate and the resulting annual payment are determined once for the first distribution year and the annual payment is the same amount in each succeeding year 02 Other rules The following rules apply for purposes of this section a Life expectancy tables The life expectancy tables that can be used to determine distribution periods are 1 the uniform lifetime table in Appendix A or 2 the single life expectancy table in 1 401 a 9 9 Q amp A 1 of the Income Tax Regulations or 3 the joint and last survivor table in 1 401 a 9 9 Q amp A 3 The number that is used for a distribution year is the number shown from the table for the employee s or IRA owner s age on his or her birthday in that year If the joint and survivor table is being used the age of the beneficiary on the beneficiary s birthday in the year is also used In the case of the required minimum distribution method the same life expectancy table that is used for the first distribution year must be used in each following year Thus if the taxpayer uses th
18. equal periodic payments within the meaning of 72 t 2 A 1v if they are made in accordance with one of the three calculations described in paragraphs a c of this subsection which is comprised of the three methods described in Q amp A 12 of Notice 89 25 a The required minimum distribution method The annual payment for each year is determined by dividing the account balance for that year by the number from the chosen life expectancy table for that year Under this method the account balance the number from the chosen life expectancy table and the resulting annual payments are redetermined for each year If this method is chosen there will not be deemed to be a modification in the series of substantially equal periodic payments even if the amount of payments 43 changes from year to year provided there is not a change to another method of determining the payments b The fixed amortization method The annual payment for each year is determined by amortizing in level amounts the account balance over a specified number of years determined using the chosen life expectancy table and the chosen interest rate Under this method the account balance the number from the chosen life expectancy table and the resulting annual payment are determined once for the first distribution year and the annual payment is the same amount in each succeeding year c The fixed annuitization method The annual payment for each year is determined
19. state law or would be valid under state law if it had a trust corpus e Trusts must be irrevocable as of the required beginning date e Trusts must benefit an individual or a specified class of individuals so that the life expectancy can be determined 33 e Trusts must be copied and a copy must be given to the plan administrator by the required beginning date IRS Notice 89 25 Excerpts from IRS Notice 89 25 1989 1 C B 662 Q 11 Does the 10 percent tax under section 72 t apply to amounts that are included in a plan participant s gross income pursuant to section 72 m 3 A 11 No Section 72 m 3 provides generally that employer contributions and trust income that are treated under regulations as having been applied to the purchase of life insurance protection for a plan participant must be included in the participant s gross income However such an amount is not treated as a distribution for purposes of section 72 t Q 12 In the case of an IRA or individual account plan what constitutes a series of substantially equal periodic payments for purposes of section 72 t 2 A iv A 12 Section 72 t 1 imposes an additional tax of 10 percent on the portion of early distributions from qualified retirement plans including IRAs includable in gross income However section 72 t 2 A iv provides that this tax shall not apply to distributions which are part of a series of substantially equal periodic payments not less fr
20. under the annuitization method should do so Amortization schedules always account for frequency of payments as well paying a mortgage monthly versus paying it annually results in a different annual payment amount Of the three methods the minimum distributions method seems like the only one where the frequency of distributions would have no affect on the annual distribution amount Revenue Ruling 2002 62 does not address this issue at all however Private Letter Rulings Private Letter Rulings among them 9531039 9010075 and 9241063 illustrate an annual recalculation of distributions for the annuity factor and amortization methods More specifically in years after the first year the distributions are recalculated using the balance as of the beginning of each year If you wish to see the distributions calculated using the methodology of the Letter Rulings select Private Letter Rulings for the choice The program includes disclaimer language on all reports that use the method of the Private Letter Rulings LTR 9010075 Date December 14 1989 Refer Reply to E EP R 7 LEGEND Individual A Individual B Dear This is in response to a letter from Individual A s authorized representative dated August 17 1989 as supplemented by a letter dated October 9 1989 in which Individual A s representative requested a private letter ruling on his behalf regarding the income tax consequences of proposed distributions f
21. you wish to reopen Save a File 11 1 On the File menu click Save Or on the toolbar click the Save graphic 12 2 If the file has not been saved previously the Save As dialog box appears 13 3 In the File name box type a name for the file The program automatically adds PDC extension to the file name 14 4 Select the drive and folder in which to save the file Save an Existing File Save As 15 Open an existing file or create a new file Pension Distributions Calculator 16 On the File menu click Save As Or on the toolbar click the Save graphic The Save As dialog box appears 17 In the File name box enter a name for the new file The program automatically adds the proper extension to the file name 18 Select the drive and folder in which you want to save the file Access the Print Report Window e On the File menu click Print Set up a Printer 19 1 On the File menu click Print Setup The Print Setup dialog box appears 20 2 For help with setting up a printer click J in the Print Setup dialog box Exit the Program 21 1 On the File menu click Exit A Warning appears 22 2 To save your data and create a file click Yes The Save As dialog box appears 23 3 Save the file 24 4 To close the program without saving your data click No To continue running the program click Cancel Options Menu Click Specify Distributions to enter additional distributions Click Additional Contr
22. 9 Working with Files eee eie ee oo etuer ea ro Sh rua eere etra eee vae Un prese eee ae e v epa o rE ora Re esae epe e er eene en 9 Eretquentty Used Proceduteso een titio eene eee aeo tuse a eode 9 Create a New Pre ais dated oeti quietis dealt iain eat eens 9 Open an Existing File aie n MR RR AR VISA RIT ee FRE NUR SEA I Ee EY PN Na cU YE Feed eR ups 9 R open File dose ocn ved ree stot iuge leout oon aoa bevvesi et astu edle ut E lUe ue pars das 9 Save a Filed oos Guertin ae et Ra tod a ee E deed e Rd LE 9 Save an Existing File Save AS nucsiabootedtt euo esci ietaliostudste ea ees be dns 9 Access the Print Report Window su oct etus cuti uti oie utat eri euet otieds 10 NIRE Printet seeren 10 Exit he PROBES 4 4 ve ce e eb ek ie 10 Options Me 4 uode eat elei is hod e te dedu edu ubi E ees 10 Update the APR Manager kir Iob dedo eae deca etl edad edd eta 11 Download Latest AFRs DUHOI uini oit eio etu ei cu in een 11 World image DUEGUOI o tee iq e e tee eae a iode ique et dobles seruis 11 Chanter 3 wiiinemanaitianianmnninninmninnninnniaen LS Calculating Minimum Distributions cccccsssscssssscssscssssscessssccssccssssssssesssssssssssssssessssssscees 13 Minimum Distributions icc iei tortas cca sun rasa da ot Egg e PR Cere DUUM PUDE ra ea Lada ove dU Y 13 Chapter T M AN E Pension Distributions Calculator Including Dates of Death and Spousal Rollover
23. Pension Distributions Calculator Software and User Manual version 6 10 Copyright 1995 2002 Brentmark Software Inc All Rights Reserved October 14 2002 Brentmark Software Inc 3505 Lake Lynda Drive Suite 212 Orlando FL 32817 8327 Sales 1 800 879 6665 Technical Assistance 407 306 6160 Fax 407 306 6107 www brentmark com sales brentmark com support brentmark com comments brentmark com Table of Contents Chapter svisiccssssasatansisianassiaicnannarnnaitanitinnanaaniaisiananninnananannans Introducing the Program isiiccccccssscsssccisnsscsesncsevcessensevecossoncsesekecdssnecesdessnsd esveencssevessnseeesonesdssavoeseessons 5 Welcome to the Pension Distributions Calculator cccccccesscccceccceeeesessceceseceeseeenees 5 Installationz 2 43 33 Satins Bess habe bab dass Ea a A ERR es 5 Installing the Pre eran oim eee or Tu ceded pM S uade det M cds 5 Uninstalling tlie ProOpram usi cd at o edel nei decedat a Pate ed pdt 6 What Do PSeeon the Screen ESSE EO SG EE e ite E 6 Title Bat si eei nee iet iectsetedvieiieveeae it telietesqer cel visi been ele ei PR qa 6 Menu Beatin stated vetet ere ia ope een 6 J ordbri br E mE KU EE 6 Lata Entry Sees cocotte tote irc ents a eatin ILIAD de Ae NE S DM ue 7 Command BUO S a RD een A NT AS 7 Display ATea d eso edd e ct i Se ui c e 7 Hint Etne 42 eet dtt Nets Tbe ED Nae teo Ed 7 SHOFICUE Keys C 7 rpg M
24. Reasonable Interest Rate Use Uniform Life Table Annuity Factor Table If the Distribution Method is Annuity Factor or Amortization enter a Reasonable Interest Rate see Chapter 11 Reference Material To create a Comparison Report you need to enter a Reasonable Interest Rate If the owner is still alive the life expectancy is taken straight from the Uniform Lifetime Table Simply find the owner s age on the table it covers ages 70 through 115 and use the life expectancy listed For this situation the only change caused by the 2002 final regulations was to update the numbers in the Uniform Lifetime Table If the Distribution Method is Annuitization Factor select the Mortality Table or details see Chapter 11 Reference Material that the program will use to calculate annuity factor To create a Comparison Report you need to choose an Annuity Factor Table 19 Chapter 6 Including Contributions amp Additional Distributions Contributions Use the Enter Contributions to the Qualified Plan dialog box to enter contributions to an analysis For example many employers contribute to employee retirement funds To enter contributions click the Specify Contributions button in the Main window Annual Amount Growth Rate First Year Last Year o 0000 2000 0 0000 200 0 0000 0 0000 00 0 0000 2000 Enter Contributions to Qualified Plan box Input Description Annual Amount Ente
25. Table V to determine the owner s life expectancy in for the Required Beginning Date first year that distributions are required Thereafter the program subtracts one from the life expectancy each year Recalculation method Click the Recalculate Owner s Life Exp check box The program uses Table V to determine the life expectancy each year If the plan owner has named a beneficiary Plan owners and beneficiaries have the ability to recalculate their life expectancies annually see Note If the plan owner has named a beneficiary then there are actually four methods of recalculating life expectancies each year Use the Recalculate Owner s Life Exp and the Recalculate Beneficiary s Life Exp check boxes to determine the method Joint Recalculation method Click both check boxes Both life expectancies are recalculated The program uses Table VI to determine the minimum distribution from the life expectancies Joint Term Certain method Clear both check boxes Neither life expectancy is recalculated Both the owner and the beneficiary use the term certain method Both life expectancies decrease by annually Hybrid method Only click Recalculate Owner s Life Exp The owner s life expectancy is recalculated and the beneficiary uses the term certain method Using the beneficiary s deemed age determined using single life Table V and the owner s actual age the program uses joint life Table VI to determine the minimum distributi
26. a recalculation method for determining the spouse s minimum distributions 16 Chapter 5 Calculating Pre 59 Distributions Pre 5975 Distributions Calculator Starting Date mm yyyy Distribution Year Use Rev Rul 2002 62 1 2002 Use the Pre 59 Distributions Calculator to calculate the substantially equal periodic YeS payments that plan owners need to make in Distribution Method order to avoid the 10 penalty for early 1 2002 Balance Expected Plan Growth 100 000 distributions We ve divided this process into 8 00 three steps To access the Pre 59 1 2 Distribution F A Distributions Calculator click Pre 59 on the ae ee TEN toolbar The Pre 59 distributions screen Joint or Single Life Exp Owner s Birth Date shows only those inputs that are relevant to the 1 1 1945 current case If the input is irrelevant to the Reasonable Interest Rate 7 00 case the input field will disappear Enter Use Uniform Lifetime Table information in order from top to bottom Input Starting Date Distribution Year Use Rev Rule 2002 62 Distribution Method Description Enter the first year that the plan owner needs the Pre 591 2 Distribution When the Distribution Frequency is Semiannual Quarterly or Monthly the Starting Date determines the date of the pre 50 1 2 distribution For most cases this input should be the same as the year of the Starting Date Howeve
27. an katte 27 Access the Print Report WIGOW siquis estes aede A a edge one e e cas de 27 Preview d Repotri ede ee enean tedesca uud b p ae eee le 27 Print dico 24 Pintto oil Men nen ere De ne Rd oc bono utin cip c oo e ue SM o Aet Ce 28 ImisubpilPAM SUI ERR G E 29 Report Options WIBHOW sists esi tie ie piae t alate eer ipe de unte Seda be qus 20 Access the Report Options Window esses enne enne nennen enne 20 Create a H ading fora Report o pooterscoorete aedes Be uos tii o die die iei iu 29 Format Page Marg avs ecosise ence vi RROHA RU ARR SURREY a O Sdn asa on 29 Format the Textol4 RepOlt aue rebns Uetafs Doris Rena diu fuels 29 Print Tor Windows NOI S i cedet att ada opas uasa esuada ota erases ane 20 Print the Date and Time oar Op EN EXTA QN HIERHER N RE USER RN UNTEN YR Fea ERE 30 Table of Contents Select the Number of Copies to Print e thee esie deep eise eO 30 Print Pase Numbers cud steeto ees Died meus sca dun Mens e 30 Chapter 10 iinseciadqua ntn med oen cc ERR Oi ti cii aed T ripae 31 Help Meit sas I RN 31 Help Systeme Qandil eh i ee RG paub eof O E N 31 Treghimcal Supporta EEE E va tb ua eS a t a sess tS c EE 31 Chapter ETassaouoiciaen ise odi aic m Orta cii nerd arn 39 Reference Material en M 33 lod a La T RM MEC n eme 33 IRS Notice 89 25 ouest odo eic ed ate teca dep d doce dle
28. annually made for the life or life expectancy of the employee or the joint lives or joint life expectancy of the employee and beneficiary the tax described in 72 t 1 will not be applicable Pursuant to 72 t 5 in the case of distributions from an IRA the IRA owner is substituted for the employee for purposes of applying this exception c Section 72 t 4 provides that if the series of substantially equal periodic payments that is otherwise excepted from the 10 percent tax is subsequently modified other than by reason of death or disability within a 5 year period beginning on the date of the first payment or if later age 59 2 the exception to the 10 percent tax does not apply and the taxpayer s tax for the year of modification shall be increased by an amount which but for the exception would have been imposed plus interest for the deferral period d Q amp A 12 of Notice 89 25 sets forth three methods for determining whether payments to individuals from their IRAs or if they have separated from service from their qualified retirement plans constitute a series of substantially equal periodic payments for purposes of 72 t 2 A iv e Final Income Tax Regulations that were published in the April 17 2002 issue of the Federal Register under 401 a 9 provide new life expectancy tables for determining required minimum distributions SECTION 2 METHODS 01 General rule Payments are considered to be substantially
29. c 403 b The Pension Distributions Calculator classifies retirement plans into three groups When calculating minimum distributions you need to select a Type of Plan Following are descriptions of the choices that the program provides Normal This is the most common selection if the plan owner is retiring on or before age 70 and the plan is not a Roth IRA Roth IRA The Roth IRA was created by the Taxpayer Relief Act of 1997 There are no required distributions until the year after the plan owner dies The required beginning date of minimum distributions from a Roth IRA is the year after the owner s death At that point the minimum distributions are calculated based on the beneficiary s single life expectancy If the beneficiary is the Roth IRA owner s spouse the election to recalculate the beneficiary s single life expectancy each year after the required beginning date is available For nonspousal beneficiaries the life expectancy is calculated once and reduced by one for each year after the required beginning date 595 Owner Use this selection if the owner is planning to retire after age 70 2 and owns no more than 596 of a company with a plan that is not an IRA If the plan owner owns no more than 596 of a company with a pension plan that is not an IRA the required minimum distributions are delayed until the retirement year Rev Rul 2002 62 2002 42 IRB 1 3 Oct 2002 Part I Section 72 Annuities Certain Proceed
30. cribed in Notice 89 25 and results in substantially equal periodic payments within the meaning of section 72 t 2 A iv of the Code and such payments will not be subject to the additional tax of section 72 t unless the requirements of section 72 t 4 are not met Sincerely yours Kathryn Marticello Chief Actuarial Branch 2 55 License Agreement This software is protected by both United States copyright law and international treaty provisions You must treat this software just like a book except that you may copy it onto a computer to be used and you may make archival copies of the software for the sole purpose of backing up our software and protecting your investment from loss You must also agree not to reverse engineer the software By saying just like a book Brentmark means for example that this software may be used by any number of people and may be freely moved from one computer location to another so long as there is no possibility of it being used at one location or on one computer while it is being used at another Just as a book cannot be read by two different people in two different places at the same time neither can the software be used by two different people in two different places at the same time unless of course Brentmark s copyright is being violated Limited Warranty Brentmark Software Inc warrants the physical diskette s and physical documentation enclosed herein to be free of defects in mat
31. culated using the new single life expectancy table and as with Situation 2 an existing term certain would have to be recalculated using the new table The 2002 final regulations add another wrinkle to those situations when the owner died on or after the required beginning date In these situations the life expectancy used is the greater of the one calculated using the no beneficiary case situation 2 and the one resulting from the calculation described in the previous paragraph This can get a little confusing because the no beneficiary case starts with a term calculated in the year of death while the nonspousal beneficiary s term certain starts the year after the owner s death Situation 4 Owner dies with spousal beneficiary In the year of death the minimum distribution is still calculated according to Situation 1 above It s only in the years after the owner s death that this situation applies When the owner dies with a spousal beneficiary the spouse gets special treatment In this case the distributions are based on the spouse s single life expectancy recalculated each year after the owner s death If the owner dies prior to the calendar year in which he would have reached age 70 7 the spouse does not have to start taking distributions until that year Upon the spouse s death the distributions become term certain with the term set to the spouse s life expectancy in the year of death This works the same as the old term c
32. d provided guidance in the form of questions and answers on certain provisions of the Tax Reform Act of 1986 TRA 86 In the absence of regulations on section 72 t of the Code this notice provided guidance with respect to the exception to the tax on premature distributions provided under section 72 t G A iv Q amp A 12 of Notice 89 25 provides three methods for determining substantially equal periodic payments for purposes of section 72 t 2 A iv of the Code Two of these methods involve the use of an interest rate assumption which must be an interest rate that does not exceed a reasonable interest rate on the date payments commence The method proposed by Taxpayer M in the ruling request as modified for determining annual periodic payments is to calculate an annual distribution amount for 1995 by dividing the sum of the account balances of IRA 1 and IRA 2 as of December 31 1994 by an annuity factor which is the present value of a one dollar per year life annuity commencing at age 55 The annuity factor is calculated using Taxpayer M s age attained in 1995 and commutation functions derived from the UP 1984 Mortality Table where the assumed interest rate of earnings is equal to the annually compounded Mid Term Applicable Federal Rate used for purposes of Code section 1274 d in effect on January 1 1995 rounded to the nearest whole or half percent Thus the annuity factor used in calculating the 1995 distribution amount is calculated u
33. digy you must establish a connection before selecting this option from the menu If you are connected through a network or a cable modem your internet connection is already established World image button 1 Click the button with the world image on it The following options are available e Download AFR Rate e Goto AFR Web Page 2 If you select Download AFR Rate a Aconfirmation window appears b Click Yes The rates will download into the program 3 f you select Go to AFR Web Page a You are automatically connected to the AFR Rates page on Brentmark s web site b View or manually enter the rates into the AFR Manager Click Take Distributions at End of Year to distribute required minimum distributions at the end of the year By default all fund activity takes place at the beginning of the year This includes required minimum distributions and any additional distributions If you prefer you can have all fund distributions occur at the end of the year Click Report Options to format your reports Click 16 Color Display to view the program in 16 colors 11 Pension Distributions Calculator Click File Location to select the folder where the data will be located Then click the Browse button to view your available drives and choose the default file location Click the title of the report or graph to view it 12 Chapter 4 Entering Data Chapter 3 Calculating Minimum Distributions Minimum Distributions
34. e 18 W Windows eee 5 29 World image button 11 Y DERE AE E EE EA AE 24 25 Z ZOOM A seein elec 27 59
35. e single life expectancy table for the required minimum distribution method in the first distribution year the same table must be used in subsequent distribution years b Beneficiary under joint tables If the joint life and last survivor table in 1 401 a 9 9 Q amp A 3 is used the survivor must be the actual beneficiary of the employee with respect to the account for the year of the distribution If there is more than one beneficiary the identity and age of the beneficiary used for purposes of each of the methods described in section 2 01 are determined under the rules for determining the designated beneficiary for purposes of 401 a 9 The beneficiary is determined for a year as of January 1 of the year without regard to changes in the beneficiary in that year or beneficiary determinations in prior years For example if a taxpayer starts distributions from an IRA in 2003 at age 50 and a 25 year old and 55 year old are beneficiaries on January 1 the 55 year old is the designated beneficiary and the number for the taxpayer from the joint and last survivor tables age 50 and age 55 would be 38 3 even though later in 2003 the 55 year old is eliminated as a beneficiary However if that beneficiary is eliminated or dies in 2003 under the required minimum distribution 44 Chapter 6 Printing method that individual would not be taken into account in future years If in any year there is no beneficiary the single life expectancy
36. e transfer of a portion of the account balance to another retirement plan or iii a rollover by the taxpayer of the amount received resulting in such amount not being taxable 03 Special rules The special rules described below may be applicable a Complete depletion of assets If as a result of following an acceptable method of determining substantially equal periodic payments an individual s assets in an individual account plan or an IRA are exhausted the individual will not be subject to additional income tax under 72 t 1 as a result of not receiving substantially equal periodic payments and the resulting cessation of payments will not be treated as a modification of the series of payments b One time change to required minimum distribution method An individual who begins distributions in a year using either the fixed amortization method or the fixed annuitization method may in any subsequent year switch to the required minimum distribution method to determine the payment for the year of the switch and all subsequent years and the change in method will not be treated as a modification within the meaning of 72 t 4 Once a change is made under this paragraph the required minimum distribution method must be followed in all subsequent years Any subsequent change will be a modification for purposes of 72 t 4 SECTION 3 EFFECTIVE DATE AND TRANSITIONAL RULES The guidance in this revenue ruling replaces the guidance in Q amp
37. eady commenced Enter the value of all assets in the plan The Minimum Distributions rules require that you enter the balance of the plan as of December 31 of the year preceding the first year of analysis After the first year the Private Letter Rulings also use the 12 31 plan balance to calculate distributions This input is enabled only when it is relevant to the calculations When Rev Rule 2002 62 applies the minimum distributions method is calculated using the balance as of the first distribution in each year Enter the expected annual growth of the plan This rate is not used to calculate the distributions but is just used for projections Select a Distribution Frequency Plan owners can make pre 59 distributions Annually Semiannual Quarterly or Monthly Depending on the Distribution Frequency the Plan Balance is calculated differently For example if the Distribution Frequency is Annual the growth is compounded only once each year If it is Semiannual compounding occurs twice If it is Quarterly compounding occurs four times each year If it is Monthly then compounding occurs every month Select whether to base the calculation of distributions on a single or a joint life expectancy Enter the owner s birth date and the beneficiary s birth date in month day year format The beneficiary s birth date is used to determine joint life expectancy factors 18 Chapter 5 Calculating Pre 59 1 Distributions
38. equently than annually made for the life or life expectancy of the employee or the joint lives or joint life expectancies of the employee and beneficiary Section 72 t 4 provides that if the series of periodic payments is subsequently modified within five years of the date of the first payment or if later age 59 the exception to the 10 percent tax under section 72 t 2 A iv does not apply and the taxpayer s tax for the year of modification shall be increased by an amount determined under regulations which but for the 72 t 2 A iv exception would have been imposed plus interest Payments will be considered to be substantially equal periodic payments within the meaning of section 72 t 2 A iv if they are made according to one of the methods set forth below Payments shall be treated as satisfying section 72 t 2 A iv if the annual payment is determined using a method that would be acceptable for purposes of calculating the minimum distribution required under section 401 a 9 For this purpose the payment may be determined based on the life expectancy of the employee or the joint life and last survivor expectancy of the employee and beneficiary Payments will also be treated as substantially equal periodic payments within the meaning of section 72 t 2 A iv if the amount to be distributed annually is determined by amortizing the taxpayer s account balance over a number of years equal to the life expectancy of the accoun
39. erials and workmanship for a period of 60 days from the purchase date If Brentmark receives notification within the warranty period of defects in materials or workmanship and such notification is determined by Brentmark to be correct Brentmark will replace the defective diskette s or documentation The entire and exclusive liability and remedy for breach of this Limited Warranty shall be limited to replacement of defective diskette s or documentation and shall not include or extend to any claim for or right to recover any other damages including but not limited to loss of profit data or use of the software or special incidental or consequential damages or other similar claims even if Brentmark has been specifically advised of the possibility of such damages In no event will Brentmark s liability for any damages to you or any other person ever exceed the lower of suggested list price or actual price paid for the license to use the software regardless of any form of the claim BRENTMARK SOFTWARE INC SPECIFICALLY DISCLAIMS ALL OTHER WARRANTIES EXPRESS OR IMPLIED INCLUDING BUT NOT LIMITED TO ANY IMPLIED WARRANTY OF MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE Specifically Brentmark makes no representation or warranty that the software is fit for any particular purpose and any implied warranty of merchantability is limited to the 60 day duration of the Limited Warranty covering the physical diskette s and physical documentation only
40. ertain method with the life expectancy being reduced by one for each year that passes after the spouse s death 37 As with situation 3 the 2002 final regulations add more complexity For cases where the client dies on or after the required beginning date the life expectancy used is the greater of the one calculated using the no beneficiary case situation 2 and the one resulting from the calculation described in the previous paragraph When do these apply In 2002 there is the option of using either the pre 2001 proposed regulations with all their calculation and recalculation options the 2001 proposed regulations and the 2002 final regulations After 2002 only the 2002 final regulations may be used The 2002 final regulations added more than just a new mortality table to these calculations They also added complexity When all the different situations listed above are taken together they represent a fairly complicated set of calculations that have to be correctly performed to make sure you calculate the correct distribution for your clients 2002 Brentmark Software Inc All Rights Reserved Calculating Required Minimum Distributions using the 2001 Proposed Regulations The regulations released on 1 11 2001 radically changed the way minimum distributions have to be calculated They eliminated a lot of complexity reduced the number of decisions made by a plan owner These regulations eliminated the old recalculation
41. existence had only one participant Participant G Plan L was amended effective November 1 1984 to cease any future allocations under the Plan Participant G retired from employment with Taxpayer W in November 1988 at the age of 50 Participant G s date of birth is January 5 1938 Plan L has been an ongoing plan since the amendment to cease allocations and Forms 5500 for the Plan have been filed for all subsequent plan years Participant G would like to begin receiving distributions from Plan L with the annual distribution amount to be determined by amortizing his account balance over the number of years equal to his life expectancy obtained from Table V in the Income Tax Regulations Tres Reg section 1 72 9 at an assumed interest rate of earnings equal to the Long Term Federal Rate used for purposes of I R C section 1288 b The annual amount would be distributed as a single payment on January 1 I R C section 402 a provides that the amount actually distributed to any distributee by any employees trust described in L R C section 401 a shall be taxable to him in the year in which so distributed under LR C section 72 I R C section 72 provides rules for the taxation of amounts received as annuities endowments or life insurance contracts and distributions from qualified plans I R C section 72 t 1 provides for the imposition of an additional 10 tax on early distributions from qualified plans including IRAs The additional tax is im
42. ginal owner would have turned 70 the distributions become term certain with the term set to the spouse s life expectancy in the year of death Again this works the same as the old term certain method with the life expectancy being reduced by one for each year that passes after the spouse s death Situation 5 Owner dies and a spousal rollover When the owner dies with a spousal beneficiary the spouse has the option of doing a spousal rollover with the spouse becoming the new owner In such a case the rules of Situation 1 apply after the spouse becomes the new owner Situation 6 The Exception to Situation 1 The exception to situation 1 is when there is a spousal beneficiary who is more than 10 years younger than the owner In this case the life expectancy used while the owner is alive is the joint life expectancy of the owner and spouse recalculated in each year Once the owner dies the exception no longer applies and the distribution is handled according to the situations described above 39 1987 Proposed Regulations Pre 2001 Rules If the plan owner has not named a beneficiary If the plan owner has not named a beneficiary then there are two methods for determining the plan owner s life expectancy each year Term Certain method or Recalculation method Use the Recalculate Owner s Life Exp check box to determine the method e Term Certain method Clear the Recalculate Owner s Life Exp check box The program uses
43. he owner made an appropriate election before the required beginning date a joint term certain method will be used after the plan owner s death rather than just a single life term certain for the beneficiary in cases where the owner was using a recalc method 35 Minimum Distributions Options Required Minimum Distributions Calculations under the Final Regulations After more than a decade of proposed regulations final minimum distribution regulations were published on April 17 2002 These new rules are based primarily on the proposed regulations of 2001 but they do add some new calculation wrinkles to consider As with the 2001 proposed regulations the final regulations keep the basic calculation intact Each year the distribution is calculated by dividing the previous year s ending balance by a life expectancy number The calculation complexity lies in determining the life expectancy number Here s how the new rules work Situation I Owner still alive If the owner is still alive the life expectancy is taken straight from the Uniform Lifetime Table Simply find the owner s age on the table it covers ages 70 through 115 and use the life expectancy listed For this situation the only change caused by the 2002 final regulations was to update the numbers in the Uniform Lifetime Table Prior to 2001 the Uniform Lifetime Table was known as the MDIB table and was used only for nonspousal beneficiaries Now it is used whene
44. ibution in each year To calculate the minimum distribution amount the program divides the Plan Balance by the Life Expectancy factor If you have included Pre 59 Distributions the annual Pre 5912 Distribution appears in this column 24 Chapter 7 Viewing Results Contribution This column lists the total contributions in each year If you have not specified contributions the column does not appear Pre 59 Distributions Report When you use the Pre 59 Distributions the results of these calculations appear in every report However the report that appears in the Main window displays results with growth that has been compounded annually Therefore results that appear in the Main window and the Pre 59 Distributions window may have different balances Pre 59 Distributions have to last for 5 years and must be paid until the plan owner reaches age 59 Usually this results in distributions being made for a portion of the year that the owner reaches age 59 2 For example if distributions are taken quarterly and the plan owner turns age 5912 in February 2010 only the first distribution has to be in 2010 If distributions occur at the end of each quarter no distribution would have to be made in 2010 assuming that five years worth of distributions have already been taken Column Description Year This column lists each year that the program calculates a distribution Age This column lists the owner s age in each year This
45. ibutions to add contributions Clicking Pre 59 1 2 Distributions on the Options menu is the same as clicking the Calculate Pre 59 1 2 Distributions button AFR Rates The AFR Manager stores a list of available rates starting from January 1989 through the present month The rates are needed for a number of calculations in the program e g Charitable Remainder Annuity Trust or Grantor Retained Annuity Trust The Applicable Federal Mid Term 120 Annual Rate changes monthly and is reported in The Wall Street Journal See the Federal Interest Rates in the Money and Investing section of the Journal generally between the 18 and 23 of the preceding month This rate can often be found earlier on Brentmark s web site at http www brentmark com A FRs htm 10 Chapter 4 Entering Data Note If a 7520 Rate entry field shows 30 the AFR table must be updated Thirty percent is the default value that appears when there is not a current AFR available for the chosen Transfer Date Download or manually update your AFR table Update the AFR Manager There are two ways to update the AFR Manager use the Download Latest AFRs button or click the button with the world image on it Download Latest AFRs button 1 Click the Download Latest AFRs button A confirmation window appears 2 Click Yes The rates will download into the program Note If you have internet access through a commercial proprietary service e g AOL Compuserve Pro
46. int window click Print Preview In the Print Preview window click Zoom to magnify the view Print a Report 31 On the File menu click Print Or on the toolbar click the Print graphic The Print Report window opens 32 Click the reports and graphs that you want to print 33 Select printing options 34 Click the Print Report button 27 Pension Distributions Calculator 35 For more printing options click the Report Options button Print to File On the File menu click Print Or on the toolbar click the Print graphic The Print Report window opens Click the Print to File button The Print to File window opens Select from one of four file types which you can edit or send as e mail attachments Text file saves the file with a txt extension which can be opened in any word processor Spreadsheet file saves the file with a WK1 extension which can be opened in Excel Lotus or Quattro Pro HTML saves the file with an html extension which is used most commonly on the Internet but can be read by most word processors DOC if you have Microsoft Word 97 or later saves the file with a doc extension which can be opened in Word 4 Click the Create File button The Save As window opens Enter a file name and specify a directory to which the file should be saved 28 Chapter 9 Formatting Reports Report Options Window Use the Report Options window to format your reports and graphs for printing The Report
47. le when contacting us Telephone Assistance by telephone is available Monday through Friday between 9 00 AM and 6 00 PM Eastern Standard Time at 407 306 6160 Fax For assistance by fax send your fax to 407 306 6107 31 Pension Distributions Calculator E mail For assistance via e mail send your remarks to support brentmark com Postal Mail For assistance by postal mail write to Brentmark Software Inc 3505 Lake Lynda Drive Suite 212 Orlando FL 32817 8327 In your correspondence please include the following information The name to which the program is registered A contact phone number The program name and version number Your system configuration A sample printout or description of the problem A list of any error messages that have appeared Brentmark on the Web On the toolbar click the globe graphic to access Brentmark s website 32 Chapter 11 Reference Material To keep procedures short and free of lengthy discussions this manual refers to the following material The material is listed alphabetically Beneficiary If plan owners designate a beneficiary the minimum distribution rules allow plan owners to withdraw retirement plan funds over the joint life expectancies of the plan owner and the beneficiary When you include a beneficiary in your analyses the program uses joint life expectancy factors based on the ages of the plan owner and beneficiary Generally the term
48. ling please contact Mr Rubin at 1 202 283 9888 not a toll free number Discussion of Revenue Ruling 2002 62 Revenue Ruling 2002 62 is more than just a minor refinement of the way substantially equal periodic payments are calculated It has made significant changes to all three method and clarifies some previously questionable areas Unfortunately it still leaves a lot of gray areas As a brief refresher IRS Notice 89 25 established three ways of calculating substantially equal periodic payments to avoid the 10 penalty on early withdrawals from qualified retirement plans Rev Rul 2002 62 replaces the guidance of IRS Notice 89 25 The first of the three methods the required minimum distribution method allows for distributions to be calculated in the same manner that minimum distributions are calculated Since these distributions are almost always calculated using the Uniform 46 Chapter 6 Printing Lifetime Table the Revenue Ruling extended the beginning of this table to include all ages from 10 through 115 The single life expectancy table and joint life expectancy tables may still be used as well The calculation is the same as it was prior to the ruling requiring the distribution to be recalculated each year based on the life expectancy but now the Uniform Lifetime Table is available in addition to the single and joint life expectancy tables It s worth noting that once a life expectancy table is selected it must
49. lling the Program 1 On the Windows Taskbar click the Start button 2 Point to Settings and click Control Panel The Control Panel window appears 3 Click Add Remove Programs The Add Remove Program Properties dialog box appears 4 Use the scrollbar to find the Pension Distributions Calculator When you find it click the program title Notice that the Add Remove button is now functional 5 Click the Add Remove button 6 The uninstall program begins Follow the instruction in the uninstall program What Do I See on the Screen When you run the program the Pension Distributions Calculator window opens Following are brief descriptions of what you see Title Bar The title bar appears in the top of the window It contains the following information e Program Title e Program version number e File name if the file has been saved Menu Bar The Menu bar is below the title bar The Menu bar contains three menus that you use to make program commands Toolbar The toolbar is below the menu bar The toolbar contains graphics that you click to execute frequently used program commands You can use these graphics instead of using the related Menu bar commands E 7 Open Files oA T Save Files Print Files Get Help Chapter 1 Introducing the Program Data Entry Section A data entry section appears in the left side of the window Use this section to calculate minimum distributions Command Buttons Three com
50. luding the Hybrid method and all three pre 59 7 methods To make the calculations more realistic you can enter a limited number of distributions for living expenses and a limited number of contributions to the fund Also you can enter the assumed dates of death for the owner and beneficiary and you can indicate when and if a spousal rollover occurs The program projects fund balances into the future so you can forecast future distribution requirements You can view a distributions report illustrating the plan balance life expectancies and minimum distributions Also view a plan balance graph that shows the fund balance as it changes over time or a graph that displays the annual distribution amount The program makes two calculations Minimum Distributions and Pre 59 1 2 Distributions Installation Getting started with the Pension Distributions Calculator is easy Before you install the program be sure that you re running a Windows 95 or later operating system The Pension Distributions Calculator does not run on Windows 3 1 or earlier operating systems Installing the Program Insert the disk into the disk drive On the Windows Taskbar click the Start button On the Start menu click Run The Run dialog box appears In the Open box A setup EXE should appear If it doesn t type A setup EXE Click OK Pension Distributions Calculator The setup program begins Follow the instructions in the setup program Uninsta
51. mand buttons appear below the data entry section Use these to enter additional distributions contributions and dates of death information Display Area The right side of the window is the display area Here you can view graphs or reports that display the results of the calculations Hint Line The Hint Line displays short commands to help you with data entry As you move the pointer across buttons input boxes and other areas of the window the Hint Line displays different commands Shortcut Keys Use the function keys for frequently used commands F1 Access the Help system F2 Save files F3 Open files F6 Print reports F7 Create a new file Pension Distributions Calculator Chapter 2 Working with F iles Frequently Used Procedures Refer to this chapter to view instructions for procedures that you ll frequently use when working with files Create a New File 7 On the File menu click New The program clears all previous data entry and resets the program s default values Open an Existing File 8 1 On the File menu click Open Or on the toolbar click the Open graphic The Open dialog box appears 9 2 In the File name box enter the name of the file and the proper extension Be sure you have selected the proper drive and folder that contain your file Reopen File 10 On the File menu click Reopen File A list of files you ve worked on recently will appear Select the name of the file
52. minimum distribution amount the program divides the Plan Balance by the Life Expectancy factor The Pre 59 2 Comparison report compares the dollar amount of annual distributions for each of the three Distribution Methods In order to create the Pre 59v2 Comparison you need to enter a Reasonable Interest Rate and you need to select a Mortality Table no matter which Distribution Method you use View the Pre 59 Comparison Report 27 On the toolbar click Pre 59 28 In the Pre 591 Distributions Calculator window click the Comparison tab 26 Chapter 8 Printing Reports amp Graphs Print Report Window Use the Print Report window to select reports and graphs for printing and to select printing options for more printing options see Report Options window Also from the Print Report window you can save a report as a Text or Spreadsheet file Before printing be sure that your printer is set up and that you ve formatted your printed reports in the Report Options window Set up a Printer 29 On the File menu click Print Setup The Print Setup dialog box appears 30 For help with setting up a printer click 2 in the Print Setup dialog box Access the Print Report Window There are three ways to access the Print Report dialog box On the toolbar click the Print graphic e Onthe File menu click Print e Inthe Pre 59 Distributions window click the Print button Preview a Report e In the Pr
53. n annual payment as of January 1 of the distribution year by amortizing the account balance under the Plan as of December 31 of the prior year over a number of years equal to the life expectancy of Participant G determined as follows For the initial distribution the life expectancy is to be that stated in Table V of Tres Reg section 1 72 9 using the participant s age as of January 1 of the initial distribution year In subsequent distribution years the life expectancy shall be one year less than the prior year s life expectancy The assumed interest rate of return used to compute the annual payments is equal to the Federal Long Term Rate compounded annually which is used for purposes of I R C section 1288 b and which is in effect for December of the prior year The annual distribution amount will be recalculated each year in the same manner using the applicable interest rate and life expectancy The life expectancy and the interest rate used are such that they do not result in the circumvention of the requirements of I R C section 72 t 2 A Giv and LR C section 72 t 4 through the use of an unreasonably high interest rate or an unreasonable life expectancy Accordingly we conclude that the proposed method as modified of determining periodic payments results in substantially equal periodic payments within the meaning of LR C section 72 t 2 A iv Accordingly such payments will not be subject to the additional tax of I R C section 72
54. nal regulations add some complexity to cases where the owner has already died If distributions are being taken under this scenario the length of the term has to be recalculated using the 2002 single life expectancy table For example if a plan owner died in 1995 the 2003 distribution would be based on the owner s life expectancy using the new table in 1995 reduced by 8 Under the 2001 proposed regulations the beneficiary had to be alive as of 12 31 of the year following the owner s death to be considered valid Under the 2002 regulations the beneficiary only has to be alive when the owner dies to be considered Situation 3 Owner dies with nonspousal beneficiary In the year of death the minimum distribution is still calculated according to Situation 1 above It s only in the years after the owner s death that this situation applies When the owner dies with a nonspousal beneficiary a term certain distribution period is established based on the designated beneficiary s single life expectancy in the year after the owner s death Unlike Situation 2 in this case the term is based on a life expectancy calculated in the year after the owner s death rather than the year of death For example if the owner died in 2003 the life expectancy used as the divisor in 2004 would be the beneficiary s single life expectancy in 2004 In 2005 the divisor used would be 2004 s number minus 1 The life expectancy in the year after death is of course cal
55. neficiary or no Owner s Birth Date Enter the plan Owner s Birth Date in month day year format If an owner s birth date is before 1917 the program displays a warning in the Hint Line The minimum distributions rules for owners with birth dates prior to 1917 are more complex and may be different than the current rules Therefore the program bases its calculations on minimum distributions rules after 1917 see Proposed Treas Reg Sec 1 408 8 for IRAs and 1 401 a 9 for Qualified Plans Beneficiary s Birth Date Enter the Beneficiary s Birth Date in month day year format The program uses the beneficiary s birth date to determine joint life expectancy factors as well as a single life expectancy for the beneficiary Assume Death Occurs Click Assume Death Occurs and the Benef Info button to enter Assumed Dates of Death and Spousal Rollover information Note To include a spousal rollover you need to click the Assume Death s Occur s check box Then click the Benef Info button 14 Chapter 4 Entering Data Chapter 4 Including Dates of Death and Spousal Rollovers Use the Beneficiary Info Used After Owner s Death dialog box to handle the death of either the plan owner the beneficiary or both Also for cases in which the plan owner dies you can indicate when a spousal rollover will occur To enter dates of death and spousal rollovers click Assume Death Occurs check box and the Benef Info button in the Main window Ente
56. no higher than the Afrs for the previous two months Prior to 2002 see IRS Notice 89 25 1989 1 C B 662 Q amp A 11 and 12 In various letter rulings the IRS has accepted use of the 120 Annual Long Term Applicable Federal Rate for the month in which distributions start Some commentators read some of the rulings as saying that you should use 120 of the Annual Long Term Rate which is slightly different However the difference may be seen as de minimus If you judge this rate to be appropriate it may be used in the Pension Distributions Calculator Letter Rulings cannot be used as binding authority for IRS positions Since the IRS has not issued any rulings other than Letter Rulings on the topic of reasonable interest rates for pre 59 distributions there is no binding authority on this topic These rates are posted on Brentmark s web site http www brentmark com Type of Plan The program calculates required minimum distributions for the following types of pension plans e Corporate and self employed pension profit sharing and stock bonus plans qualified under IRC Sec 401 a includes Keogh or H R 10 plans 401 k plans and employee stock ownership plans or ESOPs e Individual Retirement Accounts IRAs under IRC Sec 408 a e Simplified Employee Plans SEPs under IRC Sec 408 k and 41 e Tax sheltered annuities except for account balances existing on 12 31 86 if kept separate for accounting purposes under IRC Se
57. ns Report displays the following information Column Description Year This column lists each year that the program calculates a distribution By default the program displays years of death in red You can change the color in the Report Options window Age This column lists the owner s age in each year Even if the owner is dead the owner s age appears in this column Plan Balance This column lists the total amount of money in the owner s qualified plan in each year To calculate the Plan Balance for each year the program uses the following formula Current Plan Balance 1 Expected Plan Growth Calculated Distribution Contributions When you use the Pre 59 7 Distributions the results of these calculations appear in every report However the report that appears in the Main window displays results with growth that has been compounded annually Therefore results that appear in the Main window and the Pre 59 2 Distributions window may have different balances Life Expectancy Factor This column lists the life expectancy factors that the program uses to calculate the minimum distribution To calculate the life expectancy factors the program uses the ages of the Owner and or the Beneficiary and applies them to the minimum distribution rules Distribution This column lists the distributions in each year This includes any distributions you enter in the Enter Desired Plan Distributions box and the minimum distr
58. ntly than annually made for the joint life expectancy of Individual A and his designated beneficiary within the meaning of section 72 t 2 A iv of the Code This ruling is based on the assumption that distributions from the IRA will not be modified from the method of distribution described hereinabove in violation of section 72 t 4 of the Code A copy of this ruling is being sent to your authorized representative pursuant to a power of attorney on file in this office Sincerely yours Joyce E Floyd Chief Employee Plans Rulings Branch Enclosures Deleted Copy Notice of Intention to Disclose Deputy Assistant Chief Counsel LTR 9241063 Date July 16 1992 50 Chapter 6 Printing Refer Reply to E EP PA In re Dear x kK ok This letter is in response to your request in a letter dated May 8 1990 for a ruling letter as to whether certain proposed distributions from Plan L to Participant G are part of a series of substantially equal periodic payments and are therefore not subject to the 10 additional tax imposed on early distributions under Internal Revenue Code I R C section 72 t This ruling replaces the prior ruling for this taxpayer dated June 7 1991 PLR 9135060 According to the information received Taxpayer W was incorporated from December 1 1972 to December 31 1989 as a Professional Corporation with one employee Participant G Effective December 1 1972 Plan L was established and during its
59. on Many planners recommend this method when the plan owner is older than the beneficiary Hybrid method Only click Recalculate Beneficiary s Life Exp The beneficiary s life expectancy is recalculated and the owner uses the term certain method Using the owner s deemed age determined using single life Table V and the beneficiary s actual age the program uses joint life Table VI to determine the minimum distribution Planners recommend this variant when the beneficiary is older than the plan owner 40 Chapter 6 Printing Mortality Table The program offers the 90CM Table the 1 72 1983 table listed in IRS Regulations 1 72 7 c 1 ii1 the UP 1984 and the 830CNSMT 1980 table from IRS publication 1457 The example in IRS Notice 89 25 1989 1 C B 662 uses the UP 1984 Mortality Table As of May 1 1999 the IRS released the 90CM mortality table This table replaces the older 830CNSMT Between May 1 1999 and June 30 1999 you can use either the 80CNSMT or the 90CM After June 30 1999 do not use the SOCNSMT REG 103851 99 Note Brentmark has permission to use the UP 1984 Table Copyright c 1976 Conference of Consulting Actuaries All Rights Reserved Reasonable Interest Rate A so called reasonable interest rate is required when using the Amortization or Annuity Factor methods to compute a pre 59 plan distribution that avoids the 10 penalty for early distributions The program limits you to entering a rate
60. posed on that portion of the distribution which is includible in gross income IL R C section 72 t 2 A iv provides that I R C section 72 t 1 shall not apply to distributions made to an employee which are part of a series of substantially equal periodic payments not less frequently than annually made for the life or life expectancy of the employee or the joint lives or joint life expectancies of such employee and his beneficiary I R C section 72 t 4 provides that the 10 tax of L R C section 72 t will apply if the series of payments is subsequently modified other than by reason of death or disability before the later of 1 the close of the 5 year period beginning with the date of the first payment and 2 the employee s attainment of age 59 1 2 In such a case the taxpayer s tax for the first taxable year in which such modification occurs shall be increased by an 51 amount determined under regulations equal to the tax which would have been imposed except for the I R C section 72 t 2 A iv exception plus interest for the deferral period Tres Reg section 1 72 9 provides tables that are to be used in connection with computations under I R C section 72 and the regulations thereunder Included in this section are tables giving life expectancies for one life Table V and joint life and last survivor expectancies for two lives Table VD The proposed method for determining periodic annual payments is to determine a
61. r if your client started taking Pre 59 7 Distributions in a previous year you can use this input to calculate the distributions for the current year Set the Starting Date to be when Distributions started and enter the current year as the Distribution Year Answer yes or no See Revenue Rule 2002 62 in Chapter 11 Reference Materials There are three methods for calculating early distributions Minimum Distributions Amortization and Annuity Factor see the IRS Notice 89 25 in Chapter 11 Reference Materials 17 Pension Distributions Calculator Calculation Method Plan Balance Expected Plan Growth Distribution Frequency Joint Single Life Exp Birth Dates Pre 2002 for most cases select IRS Notice 89 25 Private Letter Rulings among them 9531039 9010075 and 9241063 illustrate an annual recalculation of distributions for the annuity factor and amortization methods More specifically in years after the first year the distributions are recalculated using the balance as of the beginning of each year If you wish to see the distributions calculated using the methodology of the Letter Rulings select Private Letter Rulings for the choice The program includes disclaimer language on all reports that use the method of the Private Letter Rulings These Letter Rulings deal with cases involving the start of new qualifying distributions They do not deal with cases involving distributions that have alr
62. r Assumed Date of Death for Owner D Nn Death Owner Survives Analysis 8S Calculated Year of Death 2027 CO Entered Year Enter Assumed Date of Death for Beneficiary C Alo Death Heneficiany Suntives Analysis Calculated Year of Death UM Entered Year Enter Spousal Rollover Information O No Rollover Rollover Occurs at Death of Owner Entered Year Ew Enter Spouse s Beneficiary Spouse has a Designated Beneficiary Spouse s Heneficiary s Birth Date END O Recalculate Spouse s Life Exp After the Rollover Input Description No Death Click to indicate that the Owner or Beneficiary does not die during the analysis Calculated Year of Death Click to have the program calculate the year of death based upon the birth dates Entered Year Click to enter a specific year of death for the Owner or Beneficiary No Rollover Click to indicate that the spouse distributes the plan upon the owner s death 15 Pension Distributions Calculator Spousal Rollover Information Input Description No Death Calculated Year Entered Year Spouse s Beneficiary s Birth Date Recalculate Spouse s Life Expectancy after Rollover 23 Click to indicate that the spouse does not die during the analysis Click to have the program calculate the year of death based on birth dates Click to enter a specific year of death for the Owner or Beneficiary Enter the birth date for the heir Click to use
63. r the annual amount of each contribution Growth Rate Enter the annual percent increase of the contribution First Year Enter the first year that the contribution is needed Last Year Enter the last year that the contribution is needed Note These contributions are added to the fund at the beginning of each year just after the distribution amount is withdrawn Generally additional contributions cannot be made after the required beginning date 21 Pension Distributions Calculator Distributions Use the Enter Desired Plan Distributions dialog box to enter additional distributions to an analysis For example your clients might make distributions to other assets or use distributions for living expenses You can model the analysis so the entire fund is distributed in one year or over a period of years By default all fund activity takes place at the beginning of the year This includes required minimum distributions and any additional distributions To make all fund distributions occur at the end of the year on the Options menu click Take Distributions at End of Year To enter distributions click the Specify Distributions button in the Main window Annual Amount Growth Rate First Year Last Year 0 0000 2000 0 0000 2000 0 0000 200 0 0000 0 0000 2000 Note The program uses these distributions whenever they are greater than the calculated minimum distribution The program will not allow the dist
64. ributions to drop below the calculated minimum The program always distributes at least the required minimum distribution so don t worry if the distribution is too small If you enter a distribution that is larger than the fund balance the program distributes the balance Enter Desired Plan Distributions box Input Description Annual Amount Enter the annual amount of each contribution Growth Rate Enter the annual percent increase of the contribution First Year Enter the first year that the distribution is needed Last Year Enter the first year that the distribution is needed 22 Chapter 7 Viewing Results Reports The program displays calculation results in four reports and two graphs Distributions Report Distributions Graph Plan Balance Graph Pre 59 Distributions Report Pre 59 7 Comparison Report Viewing Reports and Graphs On the toolbar click View Report to view the Distributions Report Plan Balance Fund to view the Plan Balance Graph Distributions to view the Distributions Graph Note When viewing the graphs the x axis represents years and the y axis represents the plan balance in dollars If you select Use Pre 59 Distributions the graphs include these calculations Current Year Report The Current Year Report simply prints the current year and the distribution amount You can only print this report 23 Pension Distributions Calculator Distributions Report The Distributio
65. rom Individual A s individual retirement account IRA You have submitted the following representations of fact 48 Chapter 6 Printing Individual A established an IRA with funds rolled over from distributions from retirement plans qualified under section 401 a of the Internal Revenue Code Individual A desires to institute periodic distributions from his IRA which would be part of a series of substantially equal periodic payments not less frequently than annually made over the joint life expectancies of Individual A and Individual B his wife An assumed interest rate would be based on the federal long term interest rate published and in effect as of June 1 1989 Table VI of section 1 72 9 of the Income Tax Regulations will be used for purposes of initially computing the life expectancy of Individual A and Individual B who is the designated beneficiary of the IRA account based on the attained ages of Individuals A and B as of July 1 1989 Distributions in a given year would be in monthly installments intended to amortize the entire balance of the individual retirement account in uniform monthly installments over the joint life expectancy as initially determined on July 3 1989 at the assumed interest rate based on an amortization schedule as set forth in the Loan Payments Handbook published by Computo Facts 209 Shepherd Avenue Bast Willow Dale Ontario Canada M2N 5W2 Withdrawals would be made in equal monthly installment
66. ry alive as of 12 31 of the year following the owner s death the five year rule applies all the money has to be distributed within the next five years If the owner dies after the required beginning date and there is no beneficiary alive as of 12 31 of the year following the owner s death the distributions are taken out over a term based on the owner s life expectancy in the year of death Once again this works the same as the old term certain method with the life expectancy being reduced by one for each year that passes after the owner s death Situation 4 Owner dies with spousal beneficiary When the owner dies with a spousal beneficiary the spouse gets special treatment In this case required distributions are generally based on the spouse s single life expectancy in each year after the owner s death If the owner dies prior to the calendar year in which he would have reached age 70 the spouse does not have to start taking distributions until that year However if the owner dies before 12 31 of the calendar year in which he would have reached age 70 and the spouse also dies before 12 31 of the calendar year in which the original owner would have reached age 70 then the second to die spouse is treated as the new owner with the rules of Situation 2 being applied if the second to die spouse has a designated beneficiary or Situation 3 if there is no designated beneficiary If the spouse dies after the year in which the ori
67. s of Endowment and Life Insurance Contracts SECTION 1 PURPOSE AND BACKGROUND 01 The purpose of this revenue ruling is to modify the provisions of Q amp A 12 of Notice 89 25 1989 1 C B 662 which provides guidance on what constitutes a series of substantially equal periodic payments within the meaning of 72 t 2 A iv of the Internal Revenue Code from an individual account under a qualified retirement plan 42 Chapter 6 Printing Section 72 t provides for an additional income tax on early withdrawals from qualified retirement plans as defined in 4974 c Section 4974 c provides in part that the term qualified retirement plan means 1 a plan described in 401 including a trust exempt from tax under 501 a 2 an annuity plan described in 403 a 3 a tax sheltered annuity arrangement described in 403 b 4 an individual retirement account described in 408 a or 5 an individual retirement annuity described in 408 b 02 a Section 72 t 1 provides that if an employee or IRA owner receives any amount from a qualified retirement plan before attaining age 59 2 the employee s or IRA owner s income tax is increased by an amount equal to 10 percent of the amount that is includible in the gross income unless one of the exceptions in 72 t 2 applies b Section 72 t 2 A iv provides in part that if distributions are part of a series of substantially equal periodic payments not less frequently than
68. s throughout each calendar year During calendar year 1989 the monthly installments for the short calendar year would equal a proportionate part of an entire year s distributions The fair market value of the IRA would initially be determined on July 1 1989 and would be redetermined as of December 31st of each year The monthly periodic distributions from the IRA for the following year would then be adjusted solely to reflect the change in the fair market value of the IRA as of that December 31st In each calendar year after 1989 the monthly installments would be adjusted by reducing the life expectancy by one year and by adjusting the fair market value of the IRA as the December 3let of the immediately preceding year Based on the foregoing Individual A requests through his authorized representative a ruling that the method of distribution described hereinabove will qualify as a series of substantially equal periodic payments not less frequently than annually made for the joint life expectancy of Individual A and his designated beneficiary within the meaning of section 72 t 2 A iv of the Code Section 72 t 1 of the Code states that if any taxpayer receives any amount from a qualified retirement plan as defined in section 4974 c of the Code the taxpayer s tax for the taxable year in which such amount is received shall be increased by an amount equal to 10 percent of the portion of such amount which is includible in gross income
69. sing a commencement age of 55 and commutation functions based on the UP 1984 Mortality Table where an interest rate of earnings equal to 8 percent 7 92 percent rounded to 8 0 percent is assumed The 54 Chapter 6 Printing annual distribution amount will be paid from IRA 1 or IRA 2 or from both IRA 1 and IRA 2 Under the proposed method as modified the annual distribution amount will be recalculated each year by dividing the total aggregated account balance of IRAs 1 and 2 as of December 31 of the prior year by an annuity factor which is the present value of a one dollar per year life annuity commencing at the age attained in the distribution year The annuity factor will be calculated using the age attained by Taxpayer M in the distribution year and commutation functions derived from the UP 1984 Mortality Table where the assumed interest rate of earnings is equal to the annually compounded Mid Term Applicable Federal Rate used for purposes of Code section 1274 d in effect on January 1 of the distribution year rounded to the nearest whole or half percent The mortality table and the interest rate used are such that they do not result in the circumvention of the requirements of sections 72 t 2 A iv and 72 t 4 of the Code through the use of an unreasonable high interest rate or an unreasonable mortality table We conclude that the proposed method as modified of determining periodic payments satisfies one of the methods des
70. t unless L R C section 72 t 4 requires that the tax be paid Sincerely yours James E Holland Jr Chief Pension Actuarial Branch Date May 1 1992 52 Chapter 6 Printing LTR 9531039 Date May 10 1995 Refer Reply to CP E EP A 2 In re Dear This letter is in response to your request dated November 29 1993 for a ruling on behalf of Taxpayer M as to whether certain proposed distributions from two individual retirement accounts IRAs owned by Taxpayer M are part of a series of substantially equal periodic payments and are therefore not subject to the 10 additional tax imposed under section 72 t of the Internal Revenue Code Code on early distributions The original request was modified by a letter faxed to our office on May 9 1994 and in telephone calls with our office in the following ways the methodology and assumptions used to calculate the annuity factor were changed the year in which the stream of payments will commence was changed to 1995 and the account balance to be used for calculating payments was modified According to the facts Taxpayer M born on March 16 1940 is the owner of two IRAs IRA 1 and IRA 2 Assets held in one of the two IRAs are periodically transferred to the other of the two IRAs Taxpayer M would like to start receiving annual payments from these two IRAs in 1995 The two IRAs will be aggregated for purposes of calculating an annual distribution amount and the dis
71. t owner or the joint life and last survivor expectancy of the account owner and beneficiary with life expectancies determined in accordance with 34 Chapter 6 Printing proposed section 1 401 a 9 1 of the regulations at an interest rate that does not exceed a reasonable interest rate on the date payments commence For example a 50 year old individual with a life expectancy of 33 1 having an account balance of 100 000 and assuming an interest rate of 8 percent could satisfy section 72 t 2 A iv by distributing 8 679 annually derived by amortizing 100 000 over 33 1 years at 8 percent interest Finally payments will be treated as substantially equal periodic payments if the amount to be distributed annually is determined by dividing the taxpayer s account balance by an annuity factor the present value of an annuity of 1 per year beginning at the taxpayer s age attained in the first distribution year and continuing for the life of the taxpayer with such annuity factor derived using a reasonable mortality table and using an interest rate that does not exceed a reasonable interest rate on the date payments commence If substantially equal monthly payments are being determined the taxpayer s account balance would be divided by an annuity factor equal to the present value of an annuity of 1 per month beginning at the taxpayer s age attained in the first distribution year and continuing for the life of the taxpayer For example if the
72. table is used for that year c Interest rates The interest rate that may be used is any interest rate that is not more than 120 percent of the federal mid term rate determined in accordance with 1274 d for either of the two months immediately preceding the month in which the distribution begins The revenue rulings that contain the 1274 d federal mid term rates may be found at www irs govXax regsMedrates html d Account balance The account balance that is used to determine payments must be determined in a reasonable manner based on the facts and circumstances For example for an IRA with daily valuations that made its first distribution on July 15 2003 it would be reasonable to determine the yearly account balance when using the required minimum distribution method based on the value of the IRA from December 31 2002 to July 15 2003 For subsequent years under the required minimum distribution method it would be reasonable to use the value either on the December 31 of the prior year or on a date within a reasonable period before that year s distribution e Changes to account balance Under all three methods substantially equal periodic payments are calculated with respect to an account balance as of the first valuation date selected in paragraph d above Thus a modification to the series of payments will occur if after such date there is 1 any addition to the account balance other than gains or losses ii any nontaxabl
73. tesi secula 34 Minimum Distribution Incidental Benefit MDIB eee 35 Minimum Distributions Options 12 eai er qi op eetebe dia cessa tudo od eae 36 Required Minimum Distributions Calculations under the Final Regulations 36 Calculating Required Minimum Distributions using the 2001 Proposed Regulations 38 1987 Proposed Regulations Pre 2001 Rules eene 40 Mortality Fable 2 ones noie 0h meto adios ceri E etie o ecol scene is nee i Mar 4 Reasonable Interest Rate mrsa sete d ese iad ele eager 41 Type OF Plan reenn a e E E R e A EE TE AE S 41 Revenue Ruling 2002 62 cete iot eae roc vi Una ecol eto Rev EEAS rud odas eed aaa 42 Private Letter RUNES need Pp tud d dabit es 48 BEES PURI pra mE 48 TTR ZAG Se Sse aie le e oe ns tet EcL m Ai ged aput Od arde 50 TT OS 3 10309 asinsi Do ont Rul seein ace aaah ac ere ei NG east 53 License Tucci ime cM 56 j 57 lii Pension Distributions Calculator Chapter 1 Introducing the Program Welcome to the Pension Distributions Calculator The Pension Distributions Calculator calculates the minimum distributions required after a plan owner reaches age 70 The program also calculates the substantially equal periodic payments that plan owners need if they are making pre 59 7 distributions For each calculation data is entered separately You can apply any minimum distribution method inc
74. tions window click the Print Date and Print Time check boxes Select the Number of Copies to Print 41 Access the Print Report window 42 In the Number of Copies box enter the number of selected reports that you want to print Print Page Numbers There are two ways to include page numbers on printed reports e In the Print Report Window click the Page Numbers check box e Under the Select Printing Options heading in the Report Options window click the Print Page Numbers check box 30 Chapter 10 Getting Help If you need help it s easy to find Click the question mark wherever it appears in the program and a Help topic appears for the window in which you are working Also use the Help menu and if you still need help Brentmark provides technical support Help Menu Use the Help menu to access the Help system learn how to use Help or view information about this product and other Brentmark products Help System The program provides a complete Help system so you can get help whenever you need it Just click the question mark that appears in the top right corner of every data entry section Use the Help system s table of contents to view Help topics by category or search the Help index for specific terms Technical Support Technical Support is available by telephone fax e mail or postal mail If you have questions concerning program calculations please have a list of your exact data entry values availab
75. tribution amount will be taken out of IRA 1 or IRA 2 or both IRA 1 and IRA 2 The annual distribution amount for 1995 will be calculated by dividing the total aggregated account balance as of December 31 1994 of IRAs 1 and 2 by an annuity factor The annuity factor will be calculated using commutation functions based on the UP 1984 Mortality Table Taxpayer M s age attained in 1995 and an interest assumption equal to the annually compounded Mid Term Applicable Federal Rate used for purposes of section 1274 d of the Code in effect on January 1 1995 Annual distribution amounts for subsequent years will be calculated in a similar manner by dividing the aggregated account balance of IRA 1 and IRA 2 as of December 31 of the prior year by an annuity factor calculated using commutation functions based on the UP 1984 Mortality Table the age attained in the distribution year and an interest assumption equal to the annually compounded Mid Term Applicable Federal Rate in effect on January 1 of the distribution year Section 408 d of the Internal Revenue Code provides that amounts paid or distributed out of an individual retirement plan must be included in gross income by the payee or distributee in the manner provided under section 72 of the Code 53 Section 72 of the Internal Revenue Code provides rules for determining how amounts received as annuities endowments or life insurance contracts and distributions from qualified plans are to be taxed
76. ver the owner is alive making the distribution calculation very straightforward There is only one exception to this rule cases involving spousal beneficiaries who are more than ten years younger than the owner In that case the joint life expectancy of the owner and spouse is used Once the owner dies this exception no longer applies and Situation 4 see below applies Situation 2 Owner dies with no beneficiary In the year of death the minimum distribution is still calculated according to Situation 1 above It s only in the years after the owner s death that this situation applies If the owner dies before the required beginning date and there is no beneficiary alive as of the owner s death the five year rule applies all the money has to be distributed within five years of the year the owner died If the owner dies on or after the required beginning date and there is no beneficiary alive as of the date of death distributions after the owner s death are taken over a term based on the owner s life expectancy in the year of death This calculation is easier than it sounds For the year after death subtract one from the owner s single life expectancy in the year of death As each year passes reduce the life expectancy by one For example if the owner died in 2003 the distribution in 2004 would be based on the owner s 2003 life expectancy minus one 36 Chapter 6 Printing The new life expectancy tables used by the 2002 fi

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