72 (t) Distributions
72(t) distributions.
1. Can a 72(t) distribution be increased after the age of 59 ½. We know that you have to take out a certain minimum amount for 5 years, but can we take more after age 59 ½?
2. Can a 72(t) distribution be calculated on just of of two IRA’s owned by the client, or does the 72(t) distribution have to be calculated based on all balances?
3. Can a 72(t) be calculated based on the value of one IRA, but taken from a different IRA the client also owns?
Permalink Submitted by Alan Spross on Thu, 2009-02-05 22:41
1. It cannot be increased. The amount that is taken out is an exact amount, and is therefore both a minimum and a maximum, if the amortization or fixed annuitization methods are used.
2. The plan balance can include any or all of a client’s IRAs. In fact, having enough IRA funds to leave some accounts outside the plan provides a safety valve against busting a plan. An extra amount needed can just be taken from the non 72t account, and the penalty would only be due on the non 72t distribution.
3. No. A 72t distribution must come from one or more of the IRA accounts that are part of the plan. If two IRA accounts are used to determine the initial plan balance, it is OK to use only one of those IRAs to fund the distribution required.
When setting up a plan, it is best to use the highest interest rate possible, and then to determine the account balance that will be needed. Any balance in excess of that should be transferred to a different IRA outside the plan. Obviously, this flexibility is only available to those that have sufficient total IRA funds, and with interest rates dropping, it now takes a higher balance to produce a given dollar amount.