Substantially Equal Payments Relief

If you initiated early distributions from your Individual
Retirement Account (IRA) in the last couple of years using a
Substantially Equal Payment plan, your annual distribution
amount may be more than your current account balance can bear.
You may think there is nothing you can do to alter your
distribution amount and slow down the depletion of your IRA
account. This is not true. The IRS now permits you to make a
one-time, permanent reduction to your annual distribution
amount.

The primary purpose of an IRA is to accumulate assets for
retirement. Therefore, distributions taken before age 59 are
subject to a 10% premature distribution penalty, unless an
exception applies. One such exception is a Substantially Equal
Payment plan, which as you know is subject to several
requirements. For example, your may not stop or otherwise modify
your distributions until the longer of five years or until you
reach age 59 .

Under your Substantially Equal Payment plan, your distribution
amount was probably calculated using one of three IRS approved
methods: annuity, amortization or life expectancy. The annuity
and amortization methods are used more often because they
produce the large distribution amounts that are easily matched
to income needs.

Both the amortization and annuity methods have a fixed annual
distribution amount. It is calculated once - at the beginning of
your payment stream - and the annual distribution amount may not
be modified. This is what distinguishes the amortization and
annuity methods from the life expectancy method. If you are
using one of these methods and your account balance experiences
a significant decline, you may be running a substantial risk of
depleting your entire account.

The annual distribution amount for the life expectancy method is
recalculated annually based on your current age and account
balance. If you have experienced a significant decline in your
account balance because of the current economic conditions, your
annual distribution amount will be automatically adjusted
downward. This flexibility ensures that distributions continue
at a rate your current account balance is capable of sustaining.

If you are currently using the annuity or amortization method,
the IRS now permits you to make a one-time, permanent switch to
the life expectancy method so that you may reduce your annual
distribution amount. For example, assume you were a 54-year-old
individual taking distributions under the annuity method of
$49,460 each year. If you elect make the switch, your
distribution amount for the current year would be reduced to
$14,234. This is a significant reduction.

In evaluating whether to make this switch, you must consider
many issues. For example, you must weigh the effect of
continuing your current distribution stream against taking a
reduced annual distribution amount. You must also consider the
timing of the switch. Not everyone will be able to make the
switch for the 2005 tax year. Before you make the one-time,
permanent switch, please discuss these and other relevant issues
with your financial advisor or tax professional.