Pre-59.5 distributions
Can you take 72t distributions from an IRA and distributions from the last employer 401K simulaneously? The latter can already be taken without penalty – in this case 2 distributions per year. Wondering what the best course of action is.
Thanks, J’
Permalink Submitted by Alan - IRA critic on Thu, 2017-11-02 23:48
If you set up a 72t plan with one or more IRA accounts, your distribution options from a 401k are not affected, but both the IRA distributions and the 401k distributions will be taxable. If your 401k is large enough and allows partial distributions that are penalty free, you would not need to start a 72t plan with your IRA. Note that some 401k plans require a lump sum distribution which would be penalty free but would increase your marginal tax rate for the distribution year. In that case you might still need the IRA 72t plan. Depending on your situation, you also have the option of a lump sum distribution from the 401k which is split between a direct rollover to an IRA and a penalty free distribution to you to cover perhaps a year of expenses. That would push off the need for an IRA 72t plan for another year, and also increase your IRA balance so that when you do start the IRA 72t plan, the balance will be larger and will support a larger 72t distribution. Note that if you start a 72t plan with your IRA, you cannot roll any other money into the IRA that you are using for the 72t plan after you have taken your first 72t distribution. Your options now are a sort of mix and match situation that requires some careful planning.