Roth IRA in 72t calculation and reasonable account balance date ?
L1: Roth IRA in 72t calculation and reasonable account balance date ?I am going to start a 72T distribution in June or July. My wife (51)and I (55) have both traditional IRA’s and Roth IRA’s. I have seen conflicting information on a reasonable date for account value. I have seen some information that says we have to use our Dec 31 2010 account balance for the calculation. The accounts have done well in 2011 and using the balance from 5 months ago would reduce the payments.
If I have to use the 2010 account balances, I would need to add additional accounts to the calculation. Can Iinclude the Roths in the 72T calculation. It is my understanding that if I am able to use them, I can take distributions out any of the other accounts included in the 72T and leave the roth money to grow.2011-05-12 14:44, By: beagle, IP: [184.108.40.206]
L2: Roth IRA in 72t calculation and reasonable account balance date ?You raise a number of issues :
1. There are some restrictions re distributions from ROTH IRA accounts within 5 years of the first CONTRIBUTION, or within 5 years of EACH CONVERSION to a ROTH IRA account. “Pre-mature” distributions will result in taxation of the “earnings” in excess of the amount contributed or converted, while after the respective 5-year periods the earnings are not taxable.
2. You can definitely use more current account balances, but you are allowed to go back up to about 5 months if balances were higher then, and have declined since 12/31.
3. If you include your ROTH IRA account in either of you or your wife’s calculations, then I think that a prorata portion of the SEPP 72-T distributions would be considered to be from the ROTH IRA. For example, if your SEPP 72-T universe was $ 200,000 traditional IRA and $ 50,000 ROTH IRA balances, then 20% of all SEPP 72-T distributions would be deemed to be from your ROTH IRA, and therefore 20% of these distributions would be non-taxable, subject to #1 above.
4. However, if possible, as per your posting, use the highest TRADITIONAL IRA account balances from 12/31 thru 4/30, or later, and avoid using any of the ROTH IRA account balances so that the ROTH can continue to grow tax-free.2011-05-12 17:59, By: dlzallestaxes, IP: [220.127.116.11]
L3: Roth IRA in 72t calculation and reasonable account balance date ?I mostly agree with dlz, but thereisonedifference and a couple other additional points:
1) You will have two totally separate 72t plans here, one for you and one for your wife. Since they are independent plans, they do NOT have to use the same account balance date.
2) The date of the account balance can be right up to the day before you order the first payment, but you must use the same date for the TIRA as for the Roth IRA because each spouse only has one plan. Whatever date you select, you need to print out a statement showing the balance of both the TIRA and Roth IRA on the same date. There can be no other contributions, transfers, or distributions between the account balance date you select and the date of your initial SEPP distribution.
3) Yes, you can have a SEPP plan using both a Roth and TIRA account in the same plan. You do NOT have to pro rate between the two, you can take your annual total in any combination you wish between the two and that includes taking nothing from the Roth if you wish. If you want to take some from the Roth and the Roth ordering rules result in your taking a distribution of conversions under 5 years, do not worry about a penalty because the SEPP exception will eliminate the conversion 5 year holding penalty as well. Earnings come out last and will be taxable until you reach 59.5 and also have 5 years from your first Roth contribution year. You can manage your tax bill by taking selective distributions from one or the other IRA types, but there are more moving parts, so be very careful. You will also need an 8606 to report the Roth distributions.
4) Doing this is certainly allowable, but given the IRS’ confusion in general over 72t plans, expect that using two IRA types will increase the chance of an inquiry, and then you will have to “educate” the IRS inquirer.2011-05-12 21:53, By: Alan S., IP: [18.104.22.168]