72T Distribution Timing
Client turns 58 on 6/7/2025 and would like to begin a 72t schedule from his IRA. Based on his birthdate, what would be the options for a distribution schedule to satisfy the 72t?
Does it need to be 5 equal installments in each calendar year 2025-2029? Can it instead be pro-rated in years 2025 and 2030?
Permalink Submitted by Alan - IRA critic on Wed, 2025-01-15 12:53
This is a 5 year plan because it must run beyond 59.5.
IRS guidance is silent on the issue of pro rating stub years, but historically the IRS has allowed it with pro rating based on the month, although it has also been more common in plans that end at 59.5 than in 5 year plans. It has always been considered safer for 5 year plans to avoid pro rating and take 5 full annual distributions starting in the first year and ending in the 5 th year with nothing distributed in the 6th stub year until after the 5 years has been completed from the date of the first distribution.
If the client still wants to pro rate, the annual distribution should be pro rated by the month. For example, if the first distribution is in May, then 8/12 of the annual would be distributed in 2025 and 4/12 of the annual in the final stub year of 2030 prior to the plan termination date in May, 2030. These distributions are not required to be made at a set frequency, therefore the 2030 distribution could all be made in March for example. For 2025, the first distribution in May could be of any amount up to 8/12 of the annual, with the remainder taken at anytime in 2025.
That would produce a 2025 1099R for 8/12 of the annual calculation, 2026-2029 1099Rs for 100% of the annual, and a 2030 1099R for 4/12 of the annual. The total of all 1099R forms would be 5 years worth.