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I started my 72plan in Jul 2016 at age 52. In Jan 2024 I reach 59-1/2. My understanding of the 72t rules is that my plan is based on fiscal year...so Jul 2016 to Jul 2017, Jul 2017 to 2018, etc. I take an annual distribution each year. I've taken my 2023 distribution (for FY Jul 2022 to Jul 2023). So I'm wondering if I'm done with my plan or do I need to take another distribution in Jan 2024 (for FY Jul 2023 to Jul 2024), so that a final 1099-R distribution is reflected on my 2024 tax return (in 2025 of course)? If so, I'm wondering if I can take 6/12ths of a distribution vs. 12 months worth, given I reach 59-1/2 in Jan 2024? I'm not sure about the pro-ration amount since I've always done annual distributions. Thanks in advance.
72t plans are not based on fiscal years, they're based on calendar years. If you already took a distribution in 2023 for your annual amount then you don't want to make an additional withdrawal this year, that would break your plan. And since your plan ran for 7.5 years I think you don't have to take a partial distribution in 2024 to cover January, so you're done. (My plan ended the same way - I turned 59-1/2 in January of this year, my plan ran for 5-3/4 years, and I did not take a partial distribution for January.)
However, if you have not yet taken a 72t distribution in 2023, you need to do that before December 31st. It should be for the full annual amount since your 72t plan included all 12 months of 2023.
But to get a better answer you should tell us more about your plan - which method did you use to calculate your withdrawal amount and when did you take each of your distributions?
@gryphon I appreciate the feedback. I must have read somewhere about the fiscal year thing but really I've taking my annual distributions randomly between Mar and Jul each year. This year I did my distribution in March. I used the amortization method when I setup my plan. And I've taken full distributions each year, (8 years now), including my first year when I started the plan. My concern about not taking a partial distribution in Jan is there would be no 1099-R to report on my 2024 tax year return (in 2025), thinking the IRS could say I broke my plan since I reached 59-1/2 on 28 Jan 24. Thoughts?
While I recall i could have started my plan with a partial distribution given it started in Jul, I chose to do 100% then. I don't recall however one could do a partial at the end of the plan. Taking 1/12 just seems like it could flag the IRS when they get my 2024 tax return. I don't know really. Was hoping someone smarter than me on this subject could advise accordingly. Any authoratative source documents you could link would be very helpful. Thank you and have a great Thanksgiving, Gryphon.
@mac64 I don't think there are any written rules from the IRS about how the final year is handled when you have a plan lasting longer than 5 years, at least there weren't when I started my plan back in 2017. Click on the Q&A link at the top of the page then look for the "Last Year Distribution" topic in the "SEPP Planning" section. There are multiple posts from the old 72t.net forum that state you have the option to take either no distribution, a prorated distribution, or a full distribution, that's what I used as guidance.
In my case, I turned 59-1/2 on January 2nd this year (183 days after my birthday on July 3) so taking any distribution this year before turning 59-1/2 would have been a practical impossibility.
As to your question below about taking distributions both before and after you turn 59-1/2 next year, I think you would get 2 1099s in that case. One would be for the amount withdrawn before turning 59-1/2 and would have code 1 in box 7 (Early distribution, no known exception), this would be the same as the ones you've been getting for your 72t withdrawals in previous years. The second would be for the amount withdrawn after you turned 59-1/2 and would have code 7 in box 7 (Normal Distribution). So if you did take a distribution before turning 59-1/2 next year, the IRS would have documentation of that.
See my reply to Gryphon please and thank you for the information. When I see your reply saying "I think that you don't have to take any distribution in Jan 2024", it leaves me still with uncertainty. Is there any source document on this very issue you might share? Also, if I freely made a second distribution in 2024, that all accumulates on one 1099-R from my broker. Does the IRS care at that point what the total amount of that 1099-R is? Would they be expecting to see only a partial amount of the plan payment?
I agree with Gryphon that you can take any distribution that is CALCULATED at 1/12, 2/12, 3/12, 4/12, or 6/12 in January. From Feb-Dec you can take any amount that you want to, based upon your tax, and cash flow situation. If you don't need the money, and don't have other taxable income, then consider doing ROTH CONVERSIONS between Feb and age 73.
The IRS is used to receiving 2 form 1099-R in the year that you reach 59 1/2, each with a different code. I would take either -0- or 1/12 in Jan, which then gives you the rest of 2024 to figure out how much that you want to take out or convert after discussing it with your tax or financial planning professionals.
BTW, I have never heard of the IRS ever tracking anyone's 72t distributions, or notifying someone if they missed a payment or took a wrong amount, but I wouldn't want to recommend that anyone purposely tried to do that.
