Adding money to an IRA that is using 72t

Submitted by Robert Heard on Wed, 2014-11-19 16:18

I have a client that has set up a real estate IRA. He is taking a 72t distribution, but is finding that the rent that he is collecting is creating a surplus of cash that isn’t really earning any return. He would like to buy another rental for around $180k, but only has 70k in cash at this time. He was wondering if he could take a loan inside of the IRA and use approx. 50k as a down payment. Is this even possible? Another option would be to transfer some additional IRA dollars into the account, but I don’t know if that is allowed since he has an active 72t dist. taking place already?



Submitted by Alan - IRA critic on Wed, 2014-11-19 16:40

It is extremely risky to hold non traditional assets in a 72t plan IRA. For example, should major repairs be required that could result in thr need to exceed the 72t calculated distribution, the plan is busted. If he is running a surplus (investment gains), perhaps he should just enjoy the padding this brings instead of making another purchase which would increase the risk and reduce liquidity. No IRA loans are permitted, and if any contributions (regular or rollover) or made to the 72t IRA, the plan is immediately busted. Sounds like client is not aware that 72t plan IRAs need to be handled completely different than ordinary IRA accounts because these plans are not flexible and the penalty to bust a plan is retroactive penalty plus interest. He should invest the 70k in something liquid, which could range in risk between conservative stock funds or ETFs to short term bond funds, with the bond option being a cash surrogate. There always needs to be sufficient cash in the real estate IRA to handle evictions, uninsured losses, insurance premiums, prop taxes, and most of all large repair bills. Having a non 72t IRA for flexibility is good, since if he had major repair expenses which have to be taken out of the 72t IRA, he could draw on the other IRA for distributions for his normal living costs.  

Submitted by Mike Raitt on Wed, 2016-04-27 23:14

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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