72t
we have a client who has a 72T on her IRA and has 2 more years to go to satisfy her 72T. unfortunately her husband has becomd disable and she needs more money but she does not want to be penalized and break the 72t.
my question to you is :
if she is filing joint and her husband is now disable ( she is 60 now ) she should be able to break the 72T and not pay penalty.
I am planning to write to the IRS and ask them to make this an exception as well. this lady has to take care of her disable husband and her children and survive on what is getting now . to me this law should show more flexibilty.
Please advise.
Permalink Submitted by mk foss on Mon, 2011-06-20 20:49
I had a similar situation and my understanding was that the taxpayer had to be disabled. In that case we were able to take amounts penalty free from another IRA because of unreimbursed medical expenses for the disabled spouse.
Permalink Submitted by Alan Spross on Mon, 2011-06-20 23:42
I agree. The exception for disability only applies to the IRA of the disabled taxpayer, and if thet taxpayer was personally fully disabled, the plan would simply end. In the Benz tax court decision in 2009, the court allowed a 72t plan to remain intact even though additional distributions were taken for higher education purposes. The higher education and medical exceptions to the penalty include distributions taken for other taxpayers reported on the tax return as spouse or dependents, but the disability exception does not extend to disability of other family members. Therefore, the Benz case does not appear to provide much potential for relief in this case. That would leave the husband’s IRA or other plan that would have to step in. If he does not have another plan, there is no other provision for relief. If he has high medical costs, and not just loss of income, the Benz case could be used to request allowance of additional distributions to the extent of medical costs over 7.5% of AGI. But this would require an expensive letter ruling submission.
If she is forced to bust her 72t plan due to husband’s loss of income, at least the penalty would not apply to distributions she takes after reaching 59.5, but distributions prior to that date that were penalty free due to the plan will be subject to the retroactive penalty and interest.