Beginning a 72t

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L1: Beginning a 72tIf I start a 72t in April 2008 and roll my 401k into an IRA in April 2008, can I base it on the value of my 401k at it”s highest level in 2008 which was in January,or will it have to be based on the value at the time of the roll over? What mid term interest rate will I be able to use if the 72t is started in April. My intension would be to take my distribution in an annual amount, so I could take a full distribution for 2008.2008-04-02 08:08, By: John, IP: []
L2: Beginning a 72tHello, John:
The value used most commonly for an IRA or 401k that will be rolled into an IRA is its value as of 12/31 of the year prior to the start of the distributions. Since it has been 4 months since that time, however, you should be able to pick another value that is easy to document and closer in time to the start of the distributions. In your position, I would probably pick the month end value for either Feb or Mar prior to beginning distributions. If I recall correctly, there isn”t a hard and fast rule on this but there is some guidance as to what the IRS considers acceptable. Another acceptable value should be the amount that was actually rolled over, which is what I used.
In my case, I retired in October 2004 and rolled my 401k money into a traditional IRA, also called a TIRA, in February of 2005. I then initiated a SEPP program in 2005 with quarterly payment dates of 3/15, 6/15, 9/15, and 12/15 of each year. So far, all is working well and I have had no problems with my SEPP. Per the 1st modification date calculator on this site, it will continue to run until 3/15/2010. Since I started my SEPP at age 55.5, it will run for the full 5 years and end when I am 60.5 years old. I will be 59.5 years old in Feb. 2009.
Note that it is likely that you will need to file a form 5329 with your other tax papers in order to claim the 72t exception to the 10% early withdrawal penalty tax. If your IRA custodian correctly codes box 7 of your 1099-R as a “2”, then you will not need form 5329. Most custodians code these tax documents as a “1”, however, which will require you to file a 5329 to claim your exception.
401k to IRA rollovers can be time consuming. It”s not at all unusual for a 401k custodian to take 3-4 months to do this. It took me 6 months of diligent pursuit to get my wife”s 403b money out of the clutches of the insurance company running her teacher”s retirement program and almost 4 months to get my 401k money from the mutual fund company running it… and my 401k money was all in a money market fund, so there were no complicated assets that had to be “valued” over this time period. If you plan to keep your IRA with your old 401k plan custodian, that will probably smooth and speed this process. If not, then thereoften seems to beconsiderable reluctancein handing over the money any sooner than they absolutely have to.
Just my $0.02. Your mileage may vary.
Ed2008-04-02 15:00, By: Ed_B, IP: []