Why is the AFR Showing As 5%? – Pre 59 1/2 Distributions (SEPP Calculations)
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The IRS Released Notice 2022-6 on January 18, 2022, regarding SEPP calculations.
You can find this Notice under the ‘Help’ menu on the main part of the program (the button on the Pre-59 screen may not direct you to that Notice).
The Notice specifies that the maximum rate for a month is no longer tied strictly to the AFR rate.
The maximum rate allowed is the maximum of (5.0%, AFR Rate). Since the AFR rate has been under 5.0% for many years (10+), the maximum rate is 5.0%. Once the AFR exceeds 5.0%, the maximum will be the AFR rate. This went in effect for any calculations with a starting date of 2022+.
If you were to enter a start date of 2021 or earlier, the old rules would apply and tie the maximum specifically to the AFR.
If you wish not to use the maximum rate, you can select ‘No’ for the input ‘Use Maximum Interest Rate?’