72(t) and withdrawal from different IRA
I understand that 72(t) can be set up per account. Would a 72(t) stream drawn from one IRA account be considered “modified” by a non-qualified withdrawal from another IRA account?
I am considering the following strategy: Split my existing Rollover IRA into two separate accounts. Start maximum 72(t) withdrawals from the first account in the amount calculated based on the value of that account only. Should I ever experience liquidity crunch in one of the subsequent years, I would withdraw from the second account and pay 10% penalty on that withdrawal. Income taxes aside, would such a withdrawal from the second account bust the 72(t) from the first account?
The reason for such a strategy is that I’m forecasting a temporary liquidity issue some 3 years down the road. Even if I maximize 72(t) now, there is a risk it will not cover all the needs, in which case I would have to pay penalty on the entire withdrawal retroactively. So I’m settling for slightly lower SEPP withdrawals and covering the shortage, if needed, with non-qualified withdrawal and 10% penalty. This strategy, if it is indeed possible, will also leave flexibility of using the second account in the same way in case of unforeseen emergencies without busting the main 72(t) stream.
Thank you.
Permalink Submitted by Alan - IRA critic on Mon, 2022-04-04 02:10
This is actually a highly recommended strategy to provide some insurance against busting your 72t plan. A distribution from the non 72t account does not affect the 72t plan, but to be a non 72t account the balance in that account cannot have been used to calculate the 72t distribution. Of course, you would likely owe the penalty for early distributions from the non 72t account, but if you qualified for a different penalty exception for the non 72t account distribution, you could avoid the penalty for that distribution also. If the distribution need that triggers the non 72t withdrawal will be on going, you could also start a second and independent 72t plan from the non 72t account, and such plan would operate totally independently of the original plan.