TIRA Distribution prior to starting 72(t)
An owner of a TIRA wants to take a non-qualified distribution prior to starting 72(t) distributions in the same year. Will distributions thereafter starting 72(t) still qualify for no penalty?
Thank you. K
An owner of a TIRA wants to take a non-qualified distribution prior to starting 72(t) distributions in the same year. Will distributions thereafter starting 72(t) still qualify for no penalty?
Thank you. K
Permalink Submitted by Alan Spross on Fri, 2008-05-02 04:01
Yes, a 72t plan can be started at any time in the calendar year. However, this situation is almost sure to generate the need to attach a 5329 to claim the penalty exception on only the distributions taken with inception of the 72t plan.
In this situation, since the first stub year of a 72t plan allows for either the pro rated amount OR the full annual amount to be taken, it is usually possible for the taxpayer to “back into” the correct 72t amount for the year and avoid any the penalty on all distributions. The documentation process can be tricky in this case because the proper interest rate and account balance must be used to coincide with the month of the first distribution of the year. Obviously, this will not work if the total of all distributions will need to exceed the amount allowable under an appropriate 72t method.