Series of Equal Periodic Payments – Does this qualify?
I have a client (age 58) that has chosen to use a 72(t) SEPP (annual distributions) to avoid the 10% penalty. If by calendar year-end we have distributed the correct amount, is it ok to take irregular distributions during a calendar year?
Permalink Submitted by Alan Spross on Tue, 2008-02-19 19:12
Yes, that’s OK.
It is fairly rare to start a 72t this close to 59.5, because the plan must be rigidly adhered to for 5 years, but perhaps there is no better option.
For the first “stub” year of the plan, a taxpayer has the option to distribute either the pro rated annual amount based on the month of initial distribution OR the full annual amount. He cannot use some number in between.
But he has total freedom to space out the distributions as needed provided that as of 12/31 he has distributed the correct amount based on the above two choices.
The good news is that if he does bust the plan the penalty will only apply to distributions taken before age 59.5, not those taken later.