Rev. Rul. 2002-62 FAQ

The IRS published an article on its web site entitled "FAQs regarding Revenue Ruling 2002-62" (see https://www.irs.gov/irb/2009-20_IRB that includes examples of how to do the pre-59½ distribution calculations. Unfortunately, they used some rather unusual assumptions for doing the calculations.

For the Amortization method, the article illustrates a distribution that is taken at the end of each year. This is an easy enough calculation to do, except that Rev. Rul. 2002-62 limits the "reasonable interest rate" by the mid-term rates from the two months prior to the first distribution. Based on this discrepancy, the IRS must be expecting you to guess at the interest rate, or they are allowing an "end-of-period" methodology for a distribution that starts immediately.

For the Annuitization method, the article shows an annuity factor that uses the "curtate" approach to valuing annuities. This approach is not frequently seen in IRS calculations. In the past, the IRS has used the "complete" method for valuing annuities (IRS Publication 1457, for example) when using government tables.

The distribution calculations in the FAQ result in higher distribution amounts. The software allows you to use the FAQ's methodology—just select "Rev. Rul. 2002-62 FAQ." When you have made this selection, the annuitization method will use the "curtate" method of valuing annuities, and the amortization method will use the "end-of-period" method (even though the distribution is assumed to start immediately).