sect 72 t
I understand that with a sect 72 t you need the income payments to be the same amount, for 5 yeras or till 59 1/2 which ever is longer.
Here’s where I am a little confussed.
If you start a new 72 t in 2008 from one act and they get their first payment in march of 2008. Than you start another seperate 72t and they get that first payment from that account in may of 2008. How to you make sure that the income is the same per year ( 1099 REPORTABLE INCOME) of the 72t distribution since in the first year will not have all 12 months like the next 4 years?
Do you have to adjust the income ( increase it )in the first year to equal what the income will be over the next 4 years?[/b]
Permalink Submitted by [email protected] on Wed, 2008-07-30 21:33
I believe the 72t is based on the aggregate of all IRA’s. So, if the distribution starts in march and you have chosen to supplement the calculated 72 distribution with another IRA there may still be time to correct the potential problem. Of course, this answer is based on my understanding. And as always, be sure to contact your tax advisor, CPA and home office support.
Permalink Submitted by Al Fry on Thu, 2008-07-31 00:30
The IRAs used to to calculate the SEPPs are considered to be the “IRA Universe”. Each IRA Universe stands on its own.
Permalink Submitted by Alan Spross on Thu, 2008-07-31 00:52
It is rare to start two separate 72t plans only two months apart. The first issue to establish is whether these are actually separate plans using different IRA accounts with their respective initial account balances and interest rates, or whether this is one plan involving more than one IRA account and reflecting the total balance of those multiple IRAs. If that were the case, the annual distribution can be taken in combination over the various IRA accounts that belong to that plan (aka the SEPP universe).
In the first year of a 72t plan, the taxpayer has a choice of distributing the pro rated annual amount based on the month of the first payment OR the full annual payment. In other words, for a plan beginning in March, either 83.3% of the annual amount can be withdrawn or 100%. If a taxpayer has two separate plans he could elect a pro rated amount for one and the full annual for the other. However, this degree if complexity invites an IRS inquiry, so the plan documentation should be very clear and should be put in writing immediately. The penalty exception would probably have to be claimed on Form 5329 as well.