Question on equal periodic distributions.
2 quick questions.
1) If you are taking an annual equal periodic distributions at age 54 from an IRA to avoid the 10% penalty. Can they be taken at anytime during the calander year. In other words can the 2008 distribution be taken in December and take the 2009 distribution in January. Or does it need to be taken at the same time each year?
2) The amount used to calculate the distribution. Does it have to be Dec 31st of the prior year or can it be as of the date they start the distribution. (They have had several rollovers this year and the amount is a lot higher than it was last DEC 31st)
Permalink Submitted by Alan Spross on Thu, 2008-12-18 20:36
1) 72t distributions can be taken at anytime in a calendar year, and at different times in different years. That said, if the entire annual amount is withdrawn in January, then you must be very careful budgeting since the January distribution is going to have to last an entire year.
2) The beginning account balance used is somewhat flexible. In RR 2002-62 an example showed an account balance of 12/31 being used when the first 72t distribution was in June. Therefore, going back no more than 6 months for the balance appeared to have IRS approval. However, there is also a requirement that the balance have a reasonable relation to the balance when the first distribution is taken. If someone started a plan now and used the value from last August which was 40% higher, then the IRS might well feel that the difference in value was too great to justify going back 5 months.
IN NO EVENT can there be contributions or distributions from the account between the date of the account balance and the first 72t distribution. It sounds like in this case they rolled other IRAs or qualified plans into the IRA to be used for the 72t, so they cannot go back prior to the last contribution or distribution to establish an account balance. We also had a market meltdown in Sept through November. If the starting date for this plan is December, they should probably use the 11/30 balance or perhaps 10/31 at the earliest, as long as no rollovers were received after that date.
Permalink Submitted by mk foss on Fri, 2008-12-19 00:44
One other point, if you’re taking these payments for 5 years (if that is a longer period than waiting until 59-1/2) then the 5 year period ends on the five year anniversary of the first payment.