72t MONTHLY Distributions Age 51 – 59 1/2 – How to Wind-Down
Hello–
An individual (DOB 01/24/1950) at age 51 began taking 72t distributions on a MONTHLY basis using the Annuitization Method, starting on Feb. 28th of 2001.
On July 24th 2009, he’ll be age 59 1/2.
I’m under the impression from my research that this client, after 8+ years of 72t, can stop mid-year (on say 07/25/2009 when he’s 59 1/2 plus 1 day).
QUESTION:
If client stops the MONTHLY distributions on July 25th 2009 (when reaching 59 1/2 after 8+ years of MONTHLY 72t distributions, the continued six additional MONTHLY 72t distributions for 2009 will NOT equal the ANNUAL amount in previous years…Does this cause a problem with the IRS?
Thanks,
David
Permalink Submitted by Alan Spross on Mon, 2008-11-17 23:49
David,
In this situation there is considerable flexibility because 60 months has already been distributed. In 2009, the following options exist:
1) Take 6 monthly payments ending in June
2) Take the full annual amount prior to July distributed as desired over the 6 months ending in June
3) Take nothing
Starting in August, it does not matter what is distributed.
Permalink Submitted by Al Fry on Thu, 2008-11-20 18:41
Alan – are you saying, under # 3, he need not take ANYTHING in 2009, even though he will not be 59 1/2 until July?
Permalink Submitted by Alan Spross on Thu, 2008-11-20 20:47
Yes.
This is the interpretation of Bill Stecker, who has been a student of 72t plan issues and the PLRs that have shaped the current status of these plans. He has consistently taken this position in his postings at the 72tnet website. He has a business in advising 72t clients. The IRS seems to have adopted a very lenient position with respect to what is reasonable for the final stub year, and have only acted when the violation is flagrant and obviously an unreasonable interpretation of the intent of RR 2002-62. I wondered myself for awhile if I understood this interpretation correctly, and he is confident about it. That said, option 1 in my prior post still seems the safest bet in case someone at the IRS decides to abandon prior precedent.
Taxpayer must have already taken at least 60 months of distributions and this applies only to the final stub year in which 59.5 is attained.
Obviously, this can be helpful in preserving IRA assets if the distributions are not needed.