72T Election

Submitted by Marina Ferrone on Mon, 2016-12-19 23:44

If a taxpayer has two IRAs, and he elects to make a 72T election to set up a payment stream, is he restricted from moving assets into or out of that account for the next five years?

Also, can the 72T calculation on payments be done based on two IRA balances or does it have to be done per IRA?



Submitted by Alan - IRA critic on Tue, 2016-12-20 03:08

  • For the IRA account used to establish the plan, no contributions or rollovers into that IRA are permitted and distributions are limited to the 72t distributions. The other IRA can be used for emergency needs subject to the penalty since it is not part of the 72t.
  • Taxpayer also has the option of using both IRA accounts as part of a single plan. Both account balances are used to calculate the 72t distribution, and both IRAs would have the restrictions listed above. The 72t distribution can be taken in any combination from the two accounts. However, if the entire balance is needed to generate a sufficient distribution amount, may as well just combine them before starting the plan. 


Submitted by Marina Ferrone on Tue, 2016-12-20 16:41

Thank you very much!



Submitted by Josh Harmon on Sat, 2017-01-07 14:18

I have a client who has been taking his 72(t) payments every year in August. He asked  if we could change the amount to monthly, or take it annually at a different time during the year. Is this allowable? Thank you.



Submitted by Alan - IRA critic on Sat, 2017-01-07 19:59

Yes, the distribution pattern can be changed from year to year. For other than the final year of the plan the only thing that matters is that the total distributions exactly equal the calculated amount. This could be done with one distribution or 24 distributions. In the final calendar year of the plan, there are other options as well.



Submitted by Josh Harmon on Tue, 2017-01-10 03:16

What are the options for the final year? What makes the final year different?



Submitted by Alan - IRA critic on Tue, 2017-01-10 03:24

  • For a plan that terminates at 5 years (aka 5 year plan), it is best to end distributions after 60 months worth have been distributed. That means the last calendar year should have a 0 distribution.
  • However, for plans that run over 5 years because the first distribution was prior to age 54.5, the final calendar year has 3 options:  Take out nothing, take out a full annual distribution, or take a pro rated distribution by the month (eg plan ends in July, take out 50% of the annual. But with any of these options it is still possible to take the required amount in a varying pattern.


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