Discussion of IRS' FAQs Regarding Revenue Ruling 2002-62

© 2002, Brentmark Software, Inc. All Rights Reserved.

In late November 2002, the IRS published an article on its web site entitled FAQs regarding Revenue Ruling 2002-62 that includes examples of how to do the pre-59½ distribution calculations.  The examples used some rather unusual assumptions for doing the calculations.

For the Amortization method, the FAQs illustrate a distribution that is taken at the end of each year.  Actuarially, this is an easy enough calculation to do, except that Rev. Rul. 2002-62 limits the "reasonable interest rate" by the mid-term rates from the two months prior to the first distribution.  Based on this discrepancy, the IRS might be expecting you to guess at the interest rate, or they are allowing an "end-of-period" methodology for a distribution that starts immediately (and this is logically inconsistent).

For the Annuitization method, the FAQs show an annuity factor that uses the "curtate" approach to valuing annuities. This approach is not frequently seen in IRS calculations. In the past, the IRS has used the "complete" method for valuing annuities (IRS Publication 1457, for example) when using government tables. 

The good news is that the distribution calculations in the FAQs result in higher distribution amounts. Version 6.30 of the Brentmark's Pension Distributions Planner or the Pension Distributions Calculator and version 8.00 of the Pension & Roth IRA Analyzer allow you to use the FAQs' methodology—just select "Rev. Rul. 2002-62 FAQ" for the Calculation Method in the Pre-59½ Distributions part of the program.  When you have made this selection, the annuitization method will use the "curtate" method of valuing annuities and the amortization method will use the "end-of-period" method (even though the distribution is assumed to start immediately).  This will enable use of the new IRS-approved calculations that result in somewhat higher distributions than would be possible under more standard IRS actuarial assumptions.

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