The formulas
- RMD method: payment = balance / life expectancy factor, redone each year
- Fixed amortization: payment = balance x r / (1 - (1 + r)^-n), n = life expectancy factor
- Rate cap: greater of 5% or 120% of the federal mid-term rate for either of the two months before the first payment
How it works
Notice 2022-6 sets three ways to compute substantially equal periodic payments that avoid the 10% additional tax under Section 72(t): the required minimum distribution method, the fixed amortization method and the fixed annuitization method. Life expectancy can come from the Uniform Lifetime Table, the Single Life Table or the Joint and Last Survivor Table.
The interest rate for the fixed methods can be any rate up to the greater of 5% or 120% of the federal mid-term rate for either of the two months before the first distribution. A one-time switch from a fixed method to the RMD method is allowed and is not a modification. Changing the series before the later of five years or age 59 1/2 brings back the 10% tax on all earlier payments, plus interest. The annuitization method needs the mortality table in the regulations and is not computed here.
Illustrative figures only. Check the result against your firm's methodology before relying on it.
Common questions
Which method gives the largest payment?
Of the two methods here, fixed amortization at the highest allowed rate with the Single Life Table gives the largest payment.
Can I add money to the account?
Notice 2022-6 treats contributions, rollovers and transfers into the account as modifications, except as the notice allows.
How long must payments continue?
Until the later of five years from the first payment or reaching age 59 1/2.
Sources
Runs in your browser. The figures you type are not sent to CORAA or stored. Check the result against your firm's methodology before relying on it.