L1: 72(t) distributionsMy client has decided to access funds from his IRA using the Amortization method under the 72(t) section of the IRS code. He has chosen to use the balance in his account as of 12/31/2007. He would like to take quarterly distributions. Is he required to take the entire annual payment for 2008 by 12/31/2008 or is he allowed to take quarterly payments for 1 year beginning from the first distribution? What can he do in subseqent years? He will turn 54 in September 2008.2008-08-19 10:00, By: Simo, IP: [126.96.36.199]
L2: 72(t) distributionsDuring the initial CALENDAR YEAR he can take either the TOTAL ANNUAL DISTRIBUTION or this amount prorated for the period under the plan. If he starts his distributions in September (because he probably cannot get the paperwork done by 8/31), then he could take 4/12 of the annual amount. For example, if his annual distribution would be $ 12,000 then he could take that or $ 4,000 — and no more nor no less. He could NOT start to take quarterly distributions of $ 3,000 in Sept. and another one in Dec. because that would violate both of the only amounts allowed.
The frequency of distributions is immaterial during any calendar year so long as the total distributions EQUAL the annual allowable amount.
AS CORRECTED — If he takes FULL ANNUAL DISTRIBUTIONS in 2008, 2009, 2010, 2011, 2012,and 2013, then in 2014 when he will become 59 1/2, he is not required to take any distribution before (or after) he becomes 59 1/2. If he took a prorata distribution in 2008 ( assume $ 3,000 ), then hecan take the remaining $ 9,000 in 2014 before he becomes 59 1/2, but he does not have to take anything beforebecoming 59 1/2 in 2014 because he would have already taken 5 full years of distributions in 2009 thru 2013. After he is 59 1/2 in 2014 he does not have to take any distributions, or can take whatever he wants to.
After 59 1/2, since he would have been in the plan for 5 years, he can take -0- or unlimited distributions thereafter, until the 70 1/2 Required Minimum Distributions start.
If you use the “search” feature on this list-serve, you will find hundreds, or thousands, of other discussions on this same topic.2008-08-19 10:15, By: dlzallestaxes, IP: [188.8.131.52]
L2: 72(t) distributionsdlzallestaxes – Just a question here – Looks like this client would not be 59 1/2 until 2014 – Wouldn”t he have to take a full annual distribution in 2013? If so, what happens in 2014. Just want to clarify this since I am in asimilar situation.
meb242008-08-19 12:10, By: meb24, IP: [184.108.40.206]
L2: 72(t) distributionsOOPS. You”re right. That 1/2 year tripped me up.
Therefore, 2013 requires a full annual distribution, and 2014 would be either -0- (because he would have already taken 5 full years of distributions), theprorata remainder if he prorated 2008, or full annual distribution if he wanted to.
I have corrected my original post accordingly. Thanks.2008-08-19 12:23, By: dlzallestaxes, IP: [220.127.116.11]
L2: 72(t) distributionsJust a comment on the initial balance valuation date.
If he isnot using the RMD method, going back 9 months creates a longer gap than the IRS might want to see. They may well not question it, but keeping the starting valuation date within 6 months of the first distribution is generally considered the guaranteed safety margin. 9 months may be taking an unnecessary risk, although I presume that shrinking account values since January makes this tempting.
Perhaps opting for the full year distribution in 2008 will enable him to use a later valuation date, such as 3/31 or later. He has a few months in which to search for the highest documented valuation within that time frame to put him on more solid ground.
2008-08-19 15:43, By: Alan S., IP: [18.104.22.168]
L2: 72(t) distributionsGreat idea. Just a word of caution/clarification — The valuation date does not mean that is the plan start date. Regardless what valuation date is chosen, the start date will be 9/1/2008 at the earliest. So, he could still take a full year”s distribution, which might be more than he needs before 12/31/2008, but any excess can cover any shortfall in the annual distributions over the next year or more.
But remember the effect of taxes ondistributions this year.2008-08-19 17:07, By: dlzallestaxes, IP: [22.214.171.124]