72T Distribtution
Scenario – The client is set up to receive 72T distributions annually in January. The last distribution was made in January 2007. An additional $5,000 was requested and received in July 2007. The client is now aware he may have distrupted (destroyed) the 72T payout to avoid the 10% early distribution penalty.
Question – Is there a way the client can re-deposit the $5,000 back into the account before December 31, 2007, as if the distribution was never made? I am aware of the 60-day rule. Is there another option?
Permalink Submitted by Alan Spross on Tue, 2007-11-06 20:01
While there has been a variety of relief rulings on the 60 day deadline, client is probably down to custodian error as a viable exception.
If 2007 is the first year for the plan, there may be an opportunity to reconstruct the calculation for the plan so that it equals $5,000 more than the original calculation. This solution is contingent on the variables of the calculation including initial balance used, interest rate, joint vs. individual etc.
A real long shot might also exist if the 72t account has had huge gains. But they must be huge in order for the one time change to the RMD method to increase the distribution. Normally, that change reduces the distribution by an average of around 40%.
Based on the restrictions of a 72t plan, generally it is not a good idea to take early year lump sums for a variety of reasons. Among them is the opportunity to correct errors by rolling back amounts in excess of the exact 72t distribution amount.