72(t) at 59 1/2…
We have a client under doing 72(t) that switched to the RMD method of calculation in 2008 and had the annual payment reduced to $5,000 for last year. This new 72(t) payment was distributed in one lump sum. Now, this year, this client turns 59 1/2 on July 1. Is the client client required to withdraw exactly $5,000 since this amount was withdrawn in a lump sum last year or is it 1/2 of $5,000 since the client turns 59 1/2 on July 1?
Permalink Submitted by Alan Spross on Thu, 2010-01-21 19:56
First, you need to be sure that the client has taken at least 60 months worth of 72t distributions. Once the 60 months has been completed, the plan must continue to age 59.5 as well as follows:
When 59.5 is reached on 7/1, the client has the following choices prior to 7/1:
1) Take out the full annual distribution
2) Take out 6 months worth of distributions
3) Take out nothing
On or after 7/1 the client can take out any amount they wish, or nothing, since the plan ended on 6/30.
The distribution pattern of prior years has no bearing on the options for later years.
Permalink Submitted by Anonymous (not verified) on Thu, 2010-01-21 21:49
Just of Note: If this client switched to RMD method, it is probably unlikely that this year’s RMD is exactly equal to previous RMD of $5000 when the ending account balance and age are taken into consideration. The RMD must be recalculated each year to determine amount to be distributed for that particular year. If client hasn’t completed at least 60 months as Alan mentioned, you might want to double check the amount to be distributed this year.
meb24
Permalink Submitted by Alan Spross on Thu, 2010-01-21 23:28
Good point. If there is any 72t distribution needed prior to 7/1/2010 it would be based on the correct RMD calculation for 2010. Forget the $5,000 figure.
If the 60 months worth of distributions has not been reached in 2009 or earlier, then the modification date is the later of the month when 60 months would be reached OR June, 2010. The pro rate option for 2010 would be figured on the later of those two months.
I realize this is confusing. It is probably best to post the first month and year a distribution was taken, and whether a full annual or pro rated amount was taken out in that first year. Then we can be more specific.