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I started my 72(t) in March of 2016, and per my original plan (from which I have never deviated), I take $6004 per month, which is 1/12th of my annual required withdrawal of approx $72,000.
In 2021, two thing will occur: I turn 59.5 on Jan 20th. My 72(t) terminates on March 1st, the five year threshold. My question:
Starting on January 1st, can I take the remaining three months which I am obligated to withdraw (per my 72T plan) all at once? In words, roughly switch to a quarterly pay-out. One quarter's worth of as $72,000 annual distribution is 18,000. Therefore can I instruct my custodian to "pay me" $18,012 on January 1st. Doing so would seem to meet the requirement that I prorate the final year, 3 months worth. But, I'm getting it all at once.
Once I have received these funds on January 1st, does my custodian more or less know A.) I have met the final year's distribution, and, therefore *not* send me another 18,012 at the start of calendar Q2 thinking I'm still on a quarterly payout, or B.) do I instruct them sometime in early Feb to stop sending any more 72(t) plan distributions because I have met the requirements to exit the plan.
This next part will sound confusing. Assume it is now February 1, 2021. I got my final pro-rated "payout" from my 72(2) in January 1st. On February 1st, I withdraw 20,000. I'm over 59.5 years of age by then. Have I tripped any 72(t) switches in a bad way or is this simply an allowable withdrawal due to my age and not to be confused with my existing plan.
Perhaps out of caution on Feb 15th, I send a letter to the custodian asking them to please terminate my 72(t) plan.
On March 1st, I withdraw another 20,000. And on April 1st, I withdraw yet another $20,000.
Does any of the above violate my 72(t). ?
In summary, I took the remaining three months of my 72(t) as a lump sum on January 1st.
Starting Feb 1 and thereafter I start taking withdrawals in whatever amount I choose, let's for now say it is 20,000 per month.
I assume I will get two separate 1099s at the end of 2021. One of the 1099s says $18,000 and something like "early distribution", the other 1099 says something like $80,000 (example only), and just says "distribution". My CPA makes sure I file the correct tax form to account for the 1099 which says "early distribution $18,000".
Yes, you can change the frequency of your distributions, but not on January 1, 2021 because that is a holiday, and no financial institutions will be open.
I don't trust any financial institution to KNOW anything, least of all about SEPP 72-T plans, and definitely not for anything to happen automatically. You should notify them in writing after you receive the $ 18,000 quarterly payment that your ASEPP 72-T plan will end in March 2021, and that they should mark there records to not send you any further automatic payments.
Your plan does not end until the LATER OF AGE 59 1/2 OR 60 MONTHS AFTER YOUR 1ST DISTRIBUTION, and that will not be until MARCH 2021 since your first distribution was in March 2016. BUT, I would be careful to make sure of the DATE of the first distribution. In order to play safe, I would recommend not taking any additional distribution until APRIL 2021.
Yes, you SHOULD get two form 1099-Rs, one for the $ 18,000 early distribution, which used to be coded to indicate that there is a known exception to the 10% early distribution penalty, but now almost all institutions use the code that they do not know because, in all honesty, they do not know if you have another plan or account that violates the rules. This is not a big real. Your accountant will submit form 5329 with your tax return to cover that situation. He should report the two 1099-R forms as separate entries on your federal (and state ?) tax returns.
I checked on my first distribution, it was paid to me on 4/1/16 due to the paperwork I submitted in March of that year. I had the following 9 distribution dates in 2016
4/1 April's
4/29 May's
6/1 June's
7/1 July's
8/1 Aug's
9/1 Sep's
9/30 Oct's
11/1 Nov's
12/1 Dec's
Thus I had nine distributions in 2016, and
12 in 2017
12 in 2018
12 in 2019
12 in 2020 (almost there, one to go on December 1)
So ... I will have received 57 distributions by the end of this year.
For 2021, should I be thinking I need three more, or four more?
In other words, when the IRS says take it for five years or age 59.5 - whichever is later - is the "five years" meant to imply I took 60 distributions or 61?
Getting granular, I suppose March 30th, 2021 is the five year finish line, and thus a payment to be in April 1, 2021 would be 5 and 1/365th of a year, and in theory the "61st" payment after exactly five years of time assuming I remained on a monthly pay-out.
But I'm not remaining on a monthly payout, I want my last year to be a lump sum, in early January. And it's likely I would do a "normal" withdrawal on Feb 1, as I will at that stage be more than 59.5 years old.
Thank you @dlzallestaxesmsn, this is very helpful! I think what I will do is instruct the custodian sometime this week to not to do the typical $6004 per month on/near Jan 1, but to instead, make that payout $18,012 on/near Jan 1 (obviously Jan 2 or so) which wipes out the remaining distributions in one shot.
I'll go back to verify my first distribution was March 01, 2016, thanks for the warning/reminder.
