-9-
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).
Petitioners claim that Mr. Kulzer used the "fixed
amortization method" described in Notice 89-25, supra, to compute
the substantially equal periodic payments to be withdrawn from
his retirement account(s). Thus the parties agree that the fixed
amortization method described in Notice 89-25, supra, is a
permissible way in which to calculate a series of substantially
equal periodic payments for purposes of section 72(t)(2)(A)(iv).
Notice 89-25, Q&A-12, 1989-1 C.B. at 666, describes the
fixed amortization method as follows:
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 account owner or the joint life
and last survivor expectancy of the account owner and
beneficiary (with life expectancies determined in
accordance with 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.
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Last modified: March 27, 2008