Briefly, the three methods are known as the (a) required minimum distribution (RMD) method, (b) amortization method, and (c) annuitization method.
The amortization and annuitization methods will generate a level payout, and it will be higher than a payout under the RMD method;
In other words, you can pick and choose which accounts to add together for purposes of selecting which of the three permitted distribution methods to use: amortization method, annuitization method
, or life expectancy fractional method using either the Uniform Lifetime Table or the Single Life Table.
The fixed annuitization method
(Revenue Ruling 2002-62 section 2.
There are three primary methods used to determine substantially equal periodic payments: the required minimum distribution method; the amortization method; and the annuitization method
3) Fixed annuitization method
is calculated using a mortality table provided by the IRS and an interest rate that is not more than 120 percent of the federal midterm rate.
The annuitization method
provides the largest benefit to Harvey.
Three safe-harbor methods are available for calculating the annual withdrawal amount: (1) the required minimum distribution method, (2) the fixed amortization method, and (3)the fixed annuitization method
Under the fixed annuitization method
, the annual payment for each year is calculated 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).
Revenue ruling 2002-62 One-time change from the fixed amortization method or the fixed annuitization method
to the required minimum distribution method (all of which are IRS sanctioned methods in notice 89-25); change made to avoid premature depletion of retirement account assets that have declined in value.
Using the life expectancy method would provide $378 per month (not enough), while using the annuitization method
would provide $1,125 per month (too much).
In particular, the IRS has provided new guidance on what account balance may be used in performing 72(t) calculations based on Required Minimum Distribution rules, and on what interest rates may be used in the amortization and annuitization methods