72t question
I started a 72t distribution in October 2004 at age 56 taking a level monthly check. I will complete four years of distribution as of September 2008.
1) Can I switch to an annual distribution in October 2008 and take my final distribution? From what I have read I beleive this is permissable.
2) If I can do number 1) above, at what point can I start taking additional monies without incurring the 10% penalty, October 2008 (the date of my 5th year distribution, or October 2009 (the date when 5 complete years from the starting date of October 2004 are actually completed?
In other words, when have I completed the 5-year period in the eyes of the IRS?
Permalink Submitted by Alan Spross on Thu, 2008-02-21 17:02
Your modification date is 5 years plus a couple days for margin of error from the date you received your initial payment. You must also receive a minimum of 5 annual payments properly spread over the calendar years.
In 2004, you apparently took 3 months worth. For 05, 06, 07 and 08 you must take your annual amount spread any way you wish througout the year. In 2009 you need to take 9 months out prior to the end of Sept, 09.
After the 5th anniversary plus a couple days you can take out as little or as much as you wish without penalty, as you will be over 59.5 and will have satisfied the 5 year term of the 72t plan.
Re question #1 – For 2008 you need to take the correct annual amount, but can spread it any way you want, either prior to or after October. The Oct, 08 4 year anniversary does not have any special meaning with respect to your options. You can switch to a single annual payment anytime in 2008. For 2009, take out 75% of the annual (9 months) prior to October.
Permalink Submitted by Steve Bartlett on Thu, 2008-02-21 18:01
Thank you