72(t) withdrawals (Tax year of fiscal year?)
Does anyone know if 72(t) withwdrawals calculated monthly are looked at by the IRS as a 12 month period or as a tax year to satisfy the equal payments?
For example if a client was taking $1400 per month and the 72(t) begins in August. Does the IRS look at this from August to August or August to December? Would the client need to take a total $16,800 (1400 x 12) out by the end of the beginning year or would $1400 per month be good enough to satisfy the equal and periodic payments? Thanks
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Permalink Submitted by Alan Spross on Wed, 2008-03-19 22:13
The first and last year of a 72t plan are referred to as “stub years” for 72t purposes. The IRS has been clear that in the initial year, the participant has a choice whether to withdraw the pro rated amount based on starting month OR to withdraw the full annual calculation. The participant cannot take some figure in between those amounts.
In your example, either $7,000 or $16,800 would be acceptable. For the following calendar years, the distribution must exactly equal 16,800 under the annuitization or amortization methods, unless participant opts for the one time switch to the RMD method.
These amounts can also be distributed at differing frequencies, eg monthly, quarterly, or annual or even in irregular distributions as long as the exact amount is distributed through 12/31 of each year.