Age 59 1/2 distributions – year of or actual age attained?
I have a number of clients who are or have recently retired. Several of them are ages 57-59, but have not yet turned 59 1/2.
My question comes in determining when they are eligible to begin making distributions from those accounts free of the IRS 10% penalty. They are not eligible for any of the other exceptions, and we certainly don’t want to start 72t distributions this close to 59 1/2.
If the client turns age 59 1/2 in June of 2012, does the IRS actually track the DATE of the distribution within a tax year? Could they really begin making distributions in January of the year they turn 59 1/2, or must they actually wait until the attained age of 59 1/2? The answer will affect many of these clients, and I would appreciate any light you might be able to shed on this topic.
Thanks,
Thom H
Permalink Submitted by mk foss on Tue, 2011-02-01 00:13
The actual birthdate is used. The custodian is likely to issue two Forms 1099R in the year age 59-1/2 is attained. One will show that the 10% penalty does not apply and the other will indicate (with a code 1) that it does reply. The custodians do the tracking and notify IRS – so it’s very easy for IRS to follow up.
I have had more than one client with this situation.
Permalink Submitted by Thom Hall on Tue, 2011-02-01 00:16
Thanks, Mary Kay, that’s always the safe default to use, but I appreciate your confirmation.
Permalink Submitted by tomd37 on Tue, 2011-02-01 00:17
The custodian tracks the date of distribution and reports the appropriate distribution code in box 7 on the form 1099-R. The recipient must have attained the age of 59.5 on the date of distribution, so therefore I would not recommend a distribution any earlier than 183 days after their 59th birthdate anniversary.
I have seen several very surprised taxpayers over the years I have been preparing tax returns in the AAPR Tax-Aide program. Better late than sorry 😉 .
Tom D.
Permalink Submitted by tomd37 on Tue, 2011-02-01 00:18
Postings at the same time.
Tom D.