Acceptable Acct Balance Date 72(t) using fixed amortization
Hi,
We have a client age 53 and spouse 59 who needs to take distributions from his large IRA in the next month or two. Due market conditions, the IRA account has declined. He would like to postpone taking the distribution until January or February 2009 using the fixed amortization method. Can he use a account balance date other than December 31, 2008? (We want to use December 31, 2007 or some account balance from sometime during Jan-August 2008 b/c calculations based on that 12/31/08 balances will not allow him to take out as much as he needs).
He wants to take a distribution in January 2009 b/c he would rather not recognize income in 2008 for student financial aid purposes. Thanks.
Permalink Submitted by Alan Spross on Mon, 2008-12-08 21:42
He definitely cannot go back more than 6 months from the month the plan starts if he wants to avoid the chance of an IRS challenge. In addition to the time lag, there is also the element of massive valuation changes due to market conditions, and the general idea of choosing an account balance is to have a reasonable comparison to the current value. In addition to staying within 6 months of the plan starting month, the account value should not be more than 15% different than when payments begin.
If the spouse has an IRA and is already 59, then that IRA can be tapped without a 72t in a very few months.
This appears to be a trade off situation due to the financial aid, so the benefits of starting now vrs later need to be assessed. Also, per the att’d link, you can see that the interest rates are now dropping, so the earlier the plan begins, the greater the allowable distribution.
Note that if the market rises after year end and the plan starts in Feb, a valuation date after 12/31 can be used, as long as it is at least one day prior to the inception date for the plan.