72(t) Distribution
I have a client who has two IRAs. He is wanting to take withdrawals under the 72(t) early withdrawal penalty exception. Can you use the combined value of both IRAs to determine the amount of the withdrawal and then only withdraw the money from one of the IRAs?
Permalink Submitted by Alan Spross on Mon, 2012-07-23 17:04
Yes.
The account values must be as of the same date, and copies of a paper or on line statement showing both accounts should be saved with the other calculation documentation. Distributions can be taken in any combination from the two accounts in any year, but reporting is simpler if there is only one 1099R issued to report distributions.
If the IRS looks at the year end 5498 and sees that the value of the IRA is less than the reported distribution would suggest, they may be more inclined to request documentation, since this is the only way the IRS would know that two accounts were in fact being included in the calculations. Taxpayer documentation should clearly state that both accounts are included in a single plan since it would also be possible to maintain TWO independent 72t plans using one IRA each.
Permalink Submitted by Allen Broyles on Mon, 2012-07-23 20:33
How do you determine the date to document the value(s) of the IRA accounts? Do you just pick a date that you can document?
Permalink Submitted by Alan Spross on Mon, 2012-07-23 21:48
Yes, within the following restrictions:
1) The value on the date selected must be a “reasonable representation of the current value”. The IRS has never defined “reasonable”. I would say the value should be not more or less than 15% from the value when the first distribution is ordered. In other words, look for a date with a higher value, but not more than 15% greater than the current value.
2) There can be no rollovers, distributions from or contributions to these accounts between the date selected and the first 72t distribution.
3) Don’t go back more than 6 months