What is a "reasonable interest rate"? Fortunately, Revenue Ruling 2002-62 defines it for us. Under section 2.02(a), the interest rate is defined as follows:
- The interest rate that may be used is any interest rate that is not more than 120 percent of the federal mid-term rate (determined in accordance with §1274(d) for either of the two months immediately preceding the month in which the distribution begins). The revenue rulings that contain the §1274(d) federal mid-term rates may be found at www.irs.gov\tax_regs\fedrates.html.
When the AFR Manager rates are current, this maximum rate is filled in automatically on the Pre-59½ Distributions window when you enter the First Distribution Date.