72t

Submitted by Krista McBeath on Mon, 2016-12-05 22:30

I have a client who is only 54 and losing her job. She has no 401k or any other assets, but she is offered a lump sum pension of $670,000. She needs about $24,000 per year to cover her expenses. Could I roll the pension into and IRA, then take $550,000 and roll into another IRA to utilize 72T. I ran a calculator that said this would provide a little over $23,000 per year. I guess my question is can I break it into two IRA’s? Both would be managed investment accounts, not annuities and would have to continue to at least 59 1/2.



Submitted by Alan - IRA critic on Mon, 2016-12-05 23:13

  • Yes, the rollover IRA can be partitioned by direct trustee transfer into two accounts, one for 550k to be used to calculate the 72t plan, and the other for the remaining value which would stay outside the plan. The smaller IRA account could be used for emergency needs subject to the penalty, but it would be functioning as insurance to avoid busting the 72t plan. Client might even qualify for a different penalty exception for distributions from the other IRA, if necessary. After the 670k rollover, the direct trustee partition should be done with 550k being transferred to a new IRA account. This eliminates the chance for any changes in the pension calculution from effecting the 72t plan since any adjustments would be taken from the initial IRA rollover account.
  • Note that if the first 72t distribution is taken PRIOR TO the day she reaches 54.5, then she will not have a 5 year plan because the modification date will be at 59.5. That provides for more flexibility in the first and 6th calendar years of the plan than a 5 year plan.

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