Ending a 72T at 59 1/2
L1: Ending a 72T at 59 1/2Planning ahead. I have several 72T’s which have run for about 7 years now with about 4 years to go. When I turn 59 1/2 it will be on April 2nd of 2014 (assuming I make it that long).
How will I treat that year? Will I take the a prorated 3 months worth of 72T distributions that year and then be free from the 72T? Will I use a prorated 4 months? Will I calculate it based upon the prorated number of days I was pre-59 1/2? Maybe I need to do something else, if so what would that be?
The 1099R for that year will have a combined amount for both pre-59 1/2 distributions and post-59 1/2 distributions. Will that cause any problems or will that be left to me toexplain on my tax forms?
2010-09-22 14:01, By: Wayne, IP: [184.108.40.206]
L2: Ending a 72T at 59 1/2You will have several options in 2014, and can choose the one that best meets your needs:
1) Take out nothing prior to the modification date of your plan
2) Take out a full annual amount
3) Take out a pro rated amount of 3 months worth
If you take distributions both before and after age 59.5, you will get two 1099R forms with the post 59.5 distributions coded with a “7” and the earlier distributions with either a “2” or more likely with a “1”. You would need a 5329 to change the “1” to 02. Of course, if you take distributions in only one of these time periods you will only get one 1099R. These forms should be self explanatory for the IRS, and you would only need the 5329 for the same reason that you might need one each year now, ie the custodian has not recognized the validity of your plan and codes them with a “1”.2010-09-22 17:33, By: Alan S., IP: [220.127.116.11]
L3: Ending a 72T at 59 1/2Any idea where this information on final year 72t distribution options above is found in IRS literature?
thanks2010-09-28 21:58, By: Mike72t, IP: [18.104.22.168]
L4: Ending a 72T at 59 1/2Mike,
Well, it will not be found in the tax code or in IRA Publications or Tax Notices.
Gordon or Bill Stecker might be able to citecertain letter rulings that support these stub year options, but the basic premise is that a SEPP is a calendar year plan and RR 2002-62 states that distributions must be made ” not less frequently than annually.”
Therefore, within a given calendar year, the SEPP distributions can be taken at any time in the year, and before the modification date that means all 3 options are available providing the taxpayer has previously taken out 60 months of distributions satisfying the 5 year requirement and has reached 59.5. Once this has been done, the IRS has not required that further distributions take place in the stub year, but it is OK to take a pro rated or full annual distribution just as it is during the first year of the plan.
I know that it is not comforting that the IRS does not clearly outline these options or add them to the tax code and perhaps Pub 590 and 575. Lacking that source, all we have to go on is the history of IRS oversight of these plans and various letter rulings. I suspect that a couple specific letter rulings get more to the point, but I cannot cite specific numbers.2010-09-29 03:57, By: Alan S., IP: [22.214.171.124]