72(t) – when can I start distribution?

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L1: 72(t) – when can I start distribution?Hello,
I am 55 year old and just retired from AT&T.On 2/15/2012 I have rolled over my AT&T pension to an IRA with Fidelity of the amount of 500K. At the same day I have split it in to twoIRA accounts. One for 200K and the other for 300K. Next day I have initiated 72(t) from my 300K account only as I plan to leave the other for emergency.
Unfortunately, Fidelity is uncomfortable to process the 72(t) amortization calculation based on the established value on 2/15/2012 – claiming that I do not have a year end statement mandatory for the calculation.They claim that the year end value is mandatory by the IRS rule.I am a little confuse now. Does this mean that I have to wait until next year, wait for end year value on my IRA -300K account and than January 2013 start my first distribution? Ordid Fidelity misunderstand the IRS role? Please help. Thank you.2012-05-17 20:21, By: Gene, IP: [204.197.192.44]

L2: 72(t) – when can I start distribution?Gene… you probably talked to someone at Fidelity who shouldn’t have been answering any questions. There is a great deal of flexibility in determining the date to establish the account value. Rev. Rul. 2002-62.2(d) states…
(d) Account balance. The account balance that is used to determine payments must be determined in a reasonable manner based on the facts and circumstances. For example, for an IRA with daily valuations that made its first distribution on July 15, 2003, it would be reasonable to determine the yearly account balance when using the required minimum distribution method based on the value of the IRA from December 31, 2002 to July 15, 2003. For subsequent years, under the required minimum distribution method, it would be reasonable to use the value either on the December 31 of the prior year or on a date within a reasonable period before that year’s distribution.
I added the italics to the section that addresses your concern. You can do your own calculations and keep your own documentation and you will probably have to file form 5329 with your 1040 to claim the exemption.
If you need any additional clarrification or have any addiitional questions, please keep asking.2012-05-17 20:46, By: Gfw, IP: [205.178.73.77]

L2: 72(t) – when can I start distribution?Please clarify that I understand what you have done … and explain a few points.
On 02-15-2012 you completed an IRA Rollover from T to Fidelity, and on the same day they split the IRA into $200k for emergencies and $300k for your72(t) plan account.On 02-16-2012 you had two separate IRA accounts at Fidelity withrespective values of $200k and $300k (plus a little interest).
On 02-16-2012 you “initiated 72(t)” from the $300k account. Does “initiated” mean you filed the paperwork or took the first distribution? Has Fidelity processed any distributions yet or are y’all still discussing it?
I’m unclear on what dollar amount you are trying to use for your calculations since you reference the date 02-15-2012.
The correct value should be the amount in your 72(t) IRA account … presumably the $300k IRA you have so designated. If you are trying to use the combined value on 02-15-2012 … $500k … then you are using the wrong value, unless you want to include the entire amount as your 72(t) “universe” amount, which I don’t think you intend.
With these clarifications I think we can help you.
Jim F2012-05-17 20:47, By: Jim F, IP: [70.167.81.119]

L3: 72(t) – when can I start distribution?Thank you Jim,
You are correct in your statement:
“On 02-15-2012 (I) you completed an IRA Rollover from T to Fidelity, and on the same day they split the IRA into $200k for emergencies and $300k for your 72(t) plan account. On 02-16-2012 you (I) had two separate IRA accounts at Fidelity with respective values of $200k and $300k (plus a little interest).”
On 02-16-2012 I have field a paperwork for distribution. Fidelity did not process it since I did not have year end value (12/31/2011) on my 300K IRA account. This is the only account I would like to take the 72(t) distribution.
Do they have to have the year end value to calculate my distribution or can they use the value on 2-16-2012?
Gene
2012-05-17 21:55, By: Gene, IP: [204.197.192.44]

L4: 72(t) – when can I start distribution?Gene… did you read my response above?
You can use any date that represents a reasonable valuation date. In your case it must be after the account split.
Now you have an additional issue. The maximum interest rate that you can is based on the date the first distribution which is also the effective date of the plan – until that first distribution is made, you don’t actually have a SEPP plan.2012-05-17 22:11, By: Gfw, IP: [205.178.73.77]

L5: 72(t) – when can I start distribution?Gene,
If you wait until June 1st you can use the 1.57% rate rather than May’s 1.34%. Don’t let Fidelity handle the SEPP. It is up to you to do this, and you are ultimatley responsible for it. Just tell Fidelity you want X amount of dollars. You can take a full year on the first year, or pro-rate it based upon the months remaining.2012-05-17 22:47, By: Scott, IP: [71.142.131.153]

L6: 72(t) – when can I start distribution?And if you decide to wait until June to take your first distribution to get the higher interest rate, you might want to use your 4/30 account balance on which to base your calculations. The 4/30 balance will probably be higher than a later date if you have equity investments in your IRA.
Remember to be sure not to confuse the 72t IRA account with the other account and never transfer funds between them. As others have stated, even though your first distribution will be in June or other month, for this year you can either take a pro rated amount by the month of your distribution OR take a full annual amount.
As gfw stated, whoever you talked to at Fidelity is not up to speed on 72t plans and was totally incorrect that you needed to use a year end value on which to base your calculations.
2012-05-18 03:55, By: Alan S, IP: [24.116.67.233]

L7: 72(t) – when can I start distribution?So that others do not make the same mistake that you may have made, did Fidelity tell you to roll over your 401-K to an IRA, or was that your un-informed idea ? ( I see Fidelity’s ads frequently inviting retirees to rollover their 401-K’s to Fidelity, with no caveats about the better alternatives I discuss below that they may not tell you to consider.)
If you had spoken to a qualified tax advisor or financial planner, they would have told you that you could avoid setting up a SEPP 72-T since your employer ( A T & T) probably would have allowed you to leave your 401-K with them, and to take distributions whenever you wanted in whatever amounts you wanted.
In addition, did you attend the meetings that I assume that A T & T had which expalined NUA ( Net Unrealized Appreciation) Employer Shares that were in your 401-K. If their value had appreciated somewhat over the years over A T & T’s cost when thse shares were purchased, then you could have saved significant taxes by just distributing these shares into a non-retirement/non-IRA account, and not had to set up any SEPP 72-T.
Unfortunately it is too late now to reverse what you have done, but you might have legal recourse if you were advised improperly. ( See numerous postings on these subjects elsewhere on this website.)2012-05-18 04:48, By: dlzallestaxes, IP: [71.175.95.64]

L8: 72(t) – when can I start distribution?Good morning Gene:
I re-read your original post and thought of two additional questions. You stated that you rolled over your “T Pension” but you said nothing about your 401(k) plan. Is your K-plan still with T or did you include it with your description of your “pension” that you rolled over? In order to get both plans transferred from T you have two separate sets of paperwork to complete.
If your K-plan is still w/ T, and since you are already age 55 and you retired this year (2012), then DLZ’s post is more relevant. The K-plan would have the company stock for which you would need to adress the NUA issue. Also, if T allows periodic distributions directly from the K-plan (I’m not sure of the current status but they used to not allow it), you do not need a 72(t) as distributions from a qualified plan (K-plan in this case) are not subject to the 10% early distribution penalty if you retired during or after the year you turned age 55 which appears to be your case.
Jim F2012-05-18 13:32, By: Jim F, IP: [70.167.81.119]

L8: 72(t) – when can I start distribution?Could you please explain your comment on being able to take contributions from a 401k? My understanding is that prior to 59 1/2 you are not able to take distributions without heavy tax penalties – the only alternative being setting up a SEPP 72-T.2012-05-19 02:00, By: retiree 1, IP: [112.78.133.186]

L9: 72(t) – when can I start distribution?There are a series of exemptions to the 10% penalty. One of the exemptions applies to employer plans…
Distributions made to you after you separated from service with your employer, if the separation occurred after you reached age 55.
For the definition of age 55, IRC Notice 87-13 states…”such separation from service occurred during or after the calendar year in which the employee attained age 55.”
The distributions must be made from the plan. If the funds are moved to an IRA, the exemption is lost.2012-05-19 09:18, By: Gfw, IP: [205.178.73.77]