According to Rev. Rul. 2002-62, to make pre-59½ distributions without incurring a penalty, the payments must be “substantially equal periodic payments.”
There are three methods for calculating these “substantially equal periodic payments”:
- Minimum_Distributions_Method
- Amortization_Method
- Annuitization_Method
For 2003 and later (or optionally in 2002), you can select whether to use the calculations described in Rev. Rul. 2002-62 or the revisions put forth in the Rev. Rul. 2002-62 FAQ. The FAQ (Frequently Asked Questions list) was published by the IRS on their web site after the Revenue Ruling. Using its methodology results usually results in higher distribution amounts.
For 2002 and earlier, the rules of IRS Notice 89-25 apply. For these years, you also have the option of using the methodology from Private Letter Rulings (among them: 9531039, 9010075, and 9241063) which illustrate an annual recalculation of distributions for the annuity factor and amortization methods.
The Distribution Method determines the results of the Pre-59½ Distributions report. You can also create the Pre-59½ Comparison report, a report that compares all three distribution methods. To create the Pre-59½ Comparison report, you need to enter a “Reasonable” Interest Rate, and you need to choose a Annuity Factor Table, no matter which Distribution Method you choose.
