72 (t) complication
I have a client thathas taken a pre-591/2 distribtion for college tuition (exempt from 10% penalty) earlier this year..Can she start a 72(t) yet this year? Does the college tuition distribution earlier this year eliminate her ability to start 72(t) in 2009? OR does she have to wait until 2010 to start the 72(t)?
Permalink Submitted by Alan Spross on Fri, 2009-10-02 20:03
Yes, she can still start a 72t plan at anytime from here. The only thing complicated by the earlier distribution is the reporting of the penalty exception on Form 5329. The earlier distribution will avoid penalty due to the higher education exception, and the 72t plan will have a different exception (Code 02) for those distributions. The IRA custodian is not likely to separate the 1099R forms, and most custodians now code them as early causing the client to complete a 5329 on the return.
Of course, the client must select an initial account balance for the 72t that is fairly representative of the current IRA value, and after any contributions or distributions to that IRA. For 2009, the client also has a choice between pro rating the annual distribution by the month or taking the full indicated annual distribution. For example, if the first distribution is in October, the choice is either 25% or 100% of the annual calculation.