72t distribution until reach age 59 1/2
Client began annual 72t distribution at age 49 in March 1998. He turns 59 in December 2007. Since he normally takes the distribution in March, would he have to take a March 2008 distribution, even though he will be 59 1/2 in June that year?
Thanks!
Permalink Submitted by Alan Spross on Fri, 2007-11-30 02:42
This is a tough one because there has no specific guidance from the IRS on final stub year distribution requirements. The good news is that they have not been too picky about this, the bad news is that no one knows for sure what is required.
This is how I would summarize client’s options and and their risks:
1) Safest move would be to take the full March distribution
2) Also completely safe would be to make the one time switch to the RMD method if he wanted to reduce the amount of the full annual March distribution.
3) Less safe would be to change over to a monthly distribution in 2008 and just distribute 6 months worth and stop after the June distribution.
4) Most risky would be to take no distribution prior to June, and I do not recommend that, even though it could well skate through.
Permalink Submitted by Gay Abarbanell on Fri, 2007-11-30 03:20
Thanks so much. This reminds me of a similar area that may be fuzzy. Can a distribution be taken from an IRA anytime in the year someone turns 59 1/2, or must you actually be 59 1/2 at the time the distribution is taken?
Permalink Submitted by Alan Spross on Fri, 2007-11-30 03:44
To avoid the penalty on an IRA distribution where no other exception applies, it cannot be taken until the taxpayer actually reaches 59.5, not just reaches that calendar year. It is best to wait until the 183rd day after the 59th birthday.