72t payments and foreclosure
We have a client that has been receiving 72t distributions over the past few years. The bank is close to foreclosing on his home and he has asked if he could take a lump sum from the IRA account, which is currently used to make the 72t payment. I’ve researched if there were any other exceptions (other than death or disability) that would allow him to make changes to a 72t payment. I was hoping that the threat of foreclosure would be an exception, but I have not found anything. Does anyone have any feedback regarding this issue?
Permalink Submitted by Alan Spross on Tue, 2009-03-31 23:53
To date there has been no relief provisions passed with respect to 72t rules, or for that matter that allow other early withdrawal waivers for IRA distributions. Death and disability remain the only exceptions that allow a 72t plan to terminate prior to the modification date without retroactive penalties. The reason there has been no relief for these plans could be related to the fact that there is already a provision to allow a much reduced distribution, and that is the one time switch to the RMD method. The thinking so far is to allow exceptions which allow the taxpayer to retain retirement assets rather than to drain them faster, ie RMD relief.
Don’t suppose the client is still working and would qualify for a 401k loan, or even a hardship distribution from a 401k that would protect the 72t??