72T withdrawal on a current program 57 or 58 months old
Client has been withdrawing monthly $900 from an IRA annuity. He has been making monthly withdrawals for 4 years and 9 months. If he surrendered the annuity contract for the remaining 120,000 rolled over 80,000 and took the 40,000 as income for this tax year, would he violate the 72T arrangement? He just turned age 60 this year and 1800 or 2700 of the withdrawal could be counted as part of the 5 years or can’t it? I do not wish to see him violate this agreement for all of the obvious reasons, but he wishes to purchase a piece of property in Florida on a cash basis! What are his options?
Permalink Submitted by Alan Spross on Fri, 2010-08-27 23:25
He will be OK as long as he distributes the 40k AFTER his 72t plan modification date. Since he is over 59.5, his modification date is 5 year from the date his first distribution was taken, and he also must have taken out 60 months worth. Apparently he started the plan around Nov, 2005. To bust his plan within a couple months of his modification date would be a real waste of money since he would owe retroactive penalties on all distributions he took out prior to reaching 59.5 plus interest.
If he took out a full annual in 2005, he would have met the 60 months of distributions already, but 2010 is a final stub year for him. Since he has been taking monthly distributions, he should just complete them ending on the month prior to his modification date. Then wait a couple days after the modification date as a safety margin before he takes out the additional funds.
I don’t follow the question about the 1800 or 2700 in distributions. His options for 2010 are dependent on whether he took out a pro rate amount in 2005 or the full annual.
In summary, to determine his options for 2010, need to know his exact modification date, how much he took out in 2005, and how much he has taken out so far this year. But a distribution of 40k will have to wait until after the modification date to avoid busting the plan.
Permalink Submitted by Gordon Weis on Fri, 2010-08-27 23:50
To quickly calculate when the plan ends, check out our First Modification Date calculator at [url]http://72t.net/72t/Calculator/First/Modificaton/Date%5B/url%5D – a busted SEPP can be very expensive in terms of penalties and interest due on penalties that should have been paid.