72T inquiry
(I need to re-post this question as my client provided an updated information.)
Hello,
I have client who started a 72T plan in March of 2005 (RMD method) and the client turned 59 1/2 on 08/28/19. The client was taking monthly payments but increased the amounts in June, July and August to satisfy the 2019 RMD by the time they turned 59 1/2. My question is whether or not the client can stop the 72T plan since they are now 59 1/2 and satisfied the 2019 RMD or would the plan need to run in the first 2 months in 2020 because plan anniversary date would be in March. Is there any guidance out there on how the IRS would view the end date of the 72T plan in this case?
Thank you.
Permalink Submitted by Alan - IRA critic on Mon, 2019-09-09 15:33
OK, with a start date in 2005, this is not a 5 year plan. The modification (termination) date of the plan is therefore at age 59.5. In the final year of such a plan, assuming 60 months worth of distributions has occurred, there are 3 options for the period 1/1 to the modification date – distribute full annual, distribute a pro rated amount per month, or distribute nothing. In this case, the plan ended on 8/28/2019 so distributions are now locked in. Sounds like client increased distributions to equal the full annual amount, the same amount client took out in prior years. If so, client should be fine. The IRA custodian will issue a 1099R showing the same total distributions as in prior years, and client will report on Form 1040 the same as prior years, including the 5329 to claim the penalty exception. Since the plan has now ended, client is free to distribute any additional amounts this year or nothing, but now that client is over 59.5. future distributions will have code 7 on the 1099R. If client distributes no more this year, he will avoid having to report two different 1099R forms, but if he needs the money he can make additional withdrawals if he wishes.