Pre 59.5 withdrawals from an annuity
We have a client that is on a 72q program that they started prior to age 59.5. The client is now over 59.5 and wants to take a lump sum withdrawal from the Non-Qualified annuity. Will this affect the existing withdrawals under 72q?
Thank you.
Jamie
Permalink Submitted by Alan Spross on Wed, 2009-03-11 23:13
That would bust the 72q plan if the lump sum distribution occurred prior to the modification date for the plan. The term of the plan is the longer of 5 years from the date of first distribution or until age 59.5. If the distribution is taken prior to the appropriate date, the client will owe the 10% early withdrawal penalty on the taxable portion of each distribution made under the plan, but prior to age 59.5. The IRS will probably bill interest on these penalties as well.
Since the earnings come out first on NQ annuities issued after August, 1982, the earlier distributions in the 72t are most likely fully taxable. Perhaps some of the later ones are just a return of investment.