72(t) ?
An IRA has an existing 72(t) annual distribution. If the account owner terminates this 72(t) distribution and pays the 10% penalties owed (10% on each annual distribution yet so far). Can the same account owner quickly establish a new 72(t) utilizing the same IRA funds plus additional IRA funds and create a new 72(t)? Can the new 72(t) annual distribution be in the same calendar year as the original 72(t) distribution?
Permalink Submitted by Alan - IRA critic on Mon, 2022-10-17 20:22
Yes, a new 72t plan can be created after busting a former plan, but if done in the same year, tax reporting can be tricky. The new 72t plan calculation can also apply the higher 5% interest rate, which will produce a much larger distribution on the same balance as under prior rules. A Form 5329 would be used to both report the multi year penalty with an explanatory statement for the busted plan, and to claim the penalty exception for distributions from the new plan. If new funds will be combined with the former plan funds, it would be more clear for tax reporting purposes to do a direct transfer to a different IRA account for the new plan. Taxpayer would then receive one 1099R from the new plan IRA for which the penalty waiver could be claimed, while the other 1099R distribution would be subject to penalty, plus prior year distributions for the busted plan.
Permalink Submitted by Chris Kelly on Wed, 2022-11-02 00:57
Thank You!
Permalink Submitted by Ken Fitzgerald on Tue, 2022-10-18 03:31
What about leaving original 72T alone and avoiding all those penalties, and using that 2nd IRA you mentioned to create a second 72T, if this is being done to get more income out of IRA each year? You could take the whole first calendar’s year’s withdrawal out of new one before the end of 2022, if that would even help more. I started a 72T in 2006, and then a year later started a second one when we bought a second home, and it solved my problem of needing more money out of a 2nd IRA before reaching 59 1/2.