72T SEPP 5year or 59 1/2 age requirement
Born April 1952, Retired Feb 2003. In 2004 I began taking about 96K in an (1) annual 72T lump withdrawal and have continued to do so in each of the years 2005,2006,2007,and already in 2008. This annual withdrawal is in Feb each year
I realize that this will continue until the year I reach 59 1/2. I will withdraw the 96K in 2009 2010. In April 2011 I reach 59 and in Oct 2011 I reach 59 1/2 ..
What are the requirement for withdrawal in calander year 2011
Permalink Submitted by Alan Spross on Tue, 2008-07-29 04:38
You will be happy with the flexibility you have available in your final year of 2011. You have 3 options:
1) Take nothing (good idea if you want to maintain tax deferral)
2) Take your fulll annual amount in February as usual
3) Pro rate your annual amount for 9 months, ie 75% of the annual figure.
You may wonder about option #1, so to support this opinion I attach a copy of a post by Bill Stecker (aka The Badger), a noted authority on these plans. His post addressed a nearly identical example on the website 72tonthenet.
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By: TheBadger (IP Address 72.42.66.180)
Date: 4/13/2008 8:40 AM
Subject: final stub year paranoia
Wayne can take zero in 2008 for a couple of reasons:
1. He has already completed 5 or more full years of distributions in 2003 thru 2007.
2. He is “waiting out” so to speak approx 270 days in 2008 until he attains age 59 1/2.
3. IRC §72(t)(4) causes the 10% surtax to be applied when a “modifcation” occurs. A modification is defined by Arnold v. Commissioner as actually either of two events: a) not taking any distribution in a full calendar year; or b) and the more likely, taking a distribution in a calendar year that is not a SEPP distribution; the implication being an extra distribution.
In Wayne’s case he could simply say to himself that he will wait until 10/1/08 to make his SEPP distribution making no distribution for the period 1/1/08 to 09/30/08. On 10/1/08 he suddenly realizes that his SEPP plan has ended and thererfore no SEPP distribution is required and he can further make whatever distribution he so chooses.
Conversely, if Wayne elects to make a distibution during the period 1/1/06 to 9/30/08, it must be a SEPP distribution and a SEPP distribution only.
PLease note that if Wayne had started his SEPP plan one year later in January, 2004; then as of 1/1/08 he would only have completed 4 full years of distributions and I would therefore reverse everything above and say that distributions totaling the full annual SEPP amount would be required iin 2008 to get to the full 5 years.
Thus, the situation above really only applies when a taxpayer has already completed 5 or more fulll years of distributions and is waiting out an ending stub year (year 6 or greater) to attain age 59 1/2.
TheBadger
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