Age 59-1/2 distribution options under SEPP (72t)
L1: Age 59-1/2 distribution options under SEPP (72t)I will be 59-1/2 on 12/02/2010 (tomorrow!). I took my first distribution underthe SEPP (72t) plan on 02/18/2005 (actually on that date I receivedthe first payment of five for that year to equal my annual 72t distribution). I’ve receivedthe same annual distributionamounteach year since, INCLUDINGTHIS YEAR through today’s date of 12/01/2010. I know my 72t plan will end as of 12/03/2010, the day afterI am 59-1/2 . My question is simple. Am I allowed to take anotherpenalty-free, unlimited distribution from my IRA between 12/03/2010and 12/31/2010 FORTAX YEAR2010 that won’t bust my 72t plan?Remember, I’ve already taken out my full 72t annual amount this year for tax year 2010 as of 12/01/2010. Should I have taken a prorata amount out instead of the full annual amount in ordertohave the optionto makefurther unlimited withdrawals between 12/03/2010 and 12/31/2010? Or am I stuck now with only being able to withdraw my usual 72t annual amount for the year 2010? I would really like to takeanother distribution for 2010. Please advise.2010-12-01 15:57, By: Dan97, IP: [126.96.36.199]
L2: Age 59-1/2 distribution options under SEPP (72t)Once you have received 5 annual payments, and the SEPP 72-T plan has existed for 60 months ( 1826 or 1827 days),and you are at least 59 1/2 years old, then your SEPP 72-T regulations no longer apply. You did not have to take any payments after 3/1/2010 because you had satisfied the requirements. But you had to wait until after reaching 59 1/2 to end the plan.
As of tomorrow, you can take -0- or as much as you want without penalty. It should be reported on a separate 1099-R, but not all companies do it properly.
If applicable, you could consider taking the extra payment, and do a trustee-to-trustee transfer to a ROTH IRA. This conversion will not be included in taxable income in 2010, unless you elect for it to be done. Instead, it will be automatically includaable 50% in each of 2011 and 2012 as taxable income each of those years. Check with your tax or financial advisor on this approach.2010-12-02 01:35, By: dlzallestaxes, IP: [188.8.131.52]
L3: Age 59-1/2 distribution options under SEPP (72t)I agree that as of the 3rd, you have no restrictions with respect to distributions from your former 72t IRA.
If you take a post 12/2 distribution, your 1099R will be coded 7 for that distribution based on your reported age being over 59.5. And if you convert to a Roth, your 1099R will look exactly the same, ie Code 7.
For your 2010 distributions prior to your plan modification date, your 1099R will likely be coded “1” and you will have to file a 5329 to change that “1” to 02. But there are still some custodians who will issue a “2” code for the pre 59.5 distributions and then you will not have file a 5329.
Of course, if you do not take a distribution for the rest of 2010, then you will only have to deal with one 1099R.
As dlz indicated, a Roth conversion may or may not be suited to your situation, and the factors to consider are too detailed to go into here. But if you are in doubt about a conversion, you might still want to convert because you can always reverse (recharacterize) the conversion up to next 10/17 if it turns out that it did not work out for you, your conversion lost money etc.2010-12-02 03:19, By: Alan S., IP: [184.108.40.206]
L4: Age 59-1/2 distribution options under SEPP (72t)From Dan97: Thank you dlz and Alan for your helpful comments. I was pretty sure I could do “whatever” after 12/03/2010 since my age would be 59-1/2+. But part of my question remains unanswered (the part I’m most concerned about).
I’m concerned that I have already taken my full 72t annual distribution amount for tax year 2010 as of 12/02/2010. Shoudn’t I have prorated this distribution so that it was my 72t ANNUAL AMOUNT/12 months X 11 months since my 72t status for 2010 is only 11 months in duration?
You seem to both be suggesting that in my case, for the period 01/01/2010 thru 12/02/2010, I was allowed to take any amount I wanted as long as it DIDN’T EXCEED my annual 72t amount used since tax year 2005. Is that correct? 2010-12-02 06:34, By: Dan97, IP: [220.127.116.11]
L5: Age 59-1/2 distribution options under SEPP (72t)No, not correct that you could take any amount you wished.
You completed your 60 months in 2009, and 2010 is what is referred to as your “final stub year” since your plan ends prior to the end of the calendar year.
Your options for 2010 prior to your modification date:
1) Take NO distributions
2) Take a pro rated distribution of 11/12 of annual
3) Take a full annual amount (this is what you did).
But you could not have taken any amount different than one of the above choices, eg you could not have taken 6 months worth, because something other than the 3 options above are not considered to meet 72t requirements.2010-12-02 19:17, By: Alan S., IP: [18.104.22.168]