Client Added money to IRA with 72t distributions

Submitted by [email protected] on Thu, 2010-10-21 21:49

I have a client that set up 72t distributions 3 years ago using the amortization method. He is 60 now. He rolled more money into the same IRA last year. Now, he wants to take a higher distribution. Normally, one can make only one change within the five years period and it has to be to use the required minimum calculation. My question is:

Since he added money to the same IRA, is there any way to calculate an additional 72t payment based upon the amortization method on the new money, even though it is in the same account?



Submitted by Alan Spross on Thu, 2010-10-21 22:18

If he contributed new money to the IRA accounts he is using for his 72t plan, he has busted his plan, and will owe retroactive penalty and interest on his penalty free distributions from the first month of the plan.

You are correct that he can make a one time switch to the RMD method, but that does not affect the addition of funds in anyway.

He must be using an IRA custodian that offers no support for the 72t plan or they would have warned him of the consequences of this and may have prevented the rollover or contribution from happening. But too late now.

Since his current plan has been busted on the day that the money was added, he no longer has a plan. And since he is over 59.5 there is no need to start a new plan. The retroactive penalty ONLY applies to distributions he took prior to reaching 59.5.



Submitted by Mike Raitt on Wed, 2016-04-27 23:17

Can i add money to an IRA account that is paying out 72t distributions that was calculated using the fixed amortization single life method? Seems like I can since the 72t distribution amount is calculated 1 time on 1 of the 2 previous months ending balances. Since I have to use 1 of the 2 previous months ending balance and since the 72t amount will never be recalcuated under the above mentioned method, it seems like a new deposit into the account after the selected month-end date would have no impact on the future payments. Seems like everything I read seems to say you can’t make any new additions to the IRA once you start the 72t, but it seems like their would be an exception if I was using this particular 72t calculation method (namely, the “Fixed Amortization Single Life table” method. 



Submitted by Alan - IRA critic on Thu, 2016-04-28 00:19

No contribution can be made to an IRA that is part of a 72t plan or the plan is busted. That applies regardless of calculation method per this quote from RR 2002-62:

(e) Changes to account balance. Under all three methods, substantially equal periodic payments are calculated with respect to an account balance as of the first valuation date selected in paragraph (d) above. Thus, a modification to the series of payments will occur if, after such date, there is (i) any addition to the account balance other than gains or losses, (ii) any nontaxable transfer of a portion of the account balance to another retirement plan, or (iii) a rollover by the taxpayer of the amount received resulting in such amount not being taxable.

However, you CAN make a new contribution to a another IRA account this is not associated with your 72t plan.



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