Account balance dwindles
L1: Account balance dwindlesWe are analyzing a prospective clients account from which he has been taking 72t monthly distributions for a few years. Started in 2000 or 2001 with $300k, takes a net of $2k per month, and his current account balance is $142k. He turns 57 yrs old this year. He is concerned if his account value dwindles to an amount that cannot support the 72t distribution he will have to pay penalty’s. What is the risk of penalty if this scenario occurs? Is there a point at which it is not a concern…a term of years or age he must attain which eliminates the penalty concern?2009-07-23 17:28, By: Ed, IP: [188.8.131.52]
L2: Account balance dwindlesEd,
This is not a problem (at least the penalty exposure). If the account runs dry, there is no penalty and the 72t plan simply ends. See RR 2002-62.
If he does not need the current 2k per month and wants to preserve account value, he might consider switching to the RMD method next year which will result in a huge reduction in the distribution. But if there is any danger of the reduced amount being inadequate to live on for the next 2 years, he should NOT consider the RMD switch, because busting the plan after this many years would be a disaster. With or without the one time RMD switch, his plan ends upon reaching 59.5.2009-07-23 17:53, By: Alan S., IP: [184.108.40.206]