Busting and restarting a 72t Calculation
I have a client that started a 72t calculation in Feb. 2009. Now with the substantial gains in the account, he would like to bust his 72t calculation and start a new one and increase his monthly withdraw amount. Obviously the client would have to pay the 10% early withdraw penalty of the 10 months worth of withdraws, but that amount isn’t going to be that great. However, I believe there is a 12 month waiting period before he can restart a new 72t calculation and wanted to verify that.
Is there a 12 month waiting period that a client must wait between 72t plans. If so, do you have any other suggestions for a client that wants to increase the amount of money they are taking from a 72t calculation?
Thanks,
Permalink Submitted by Alan Spross on Tue, 2010-01-05 18:37
If the client used the 12/08 interest rate of 3.43, the use of current lower rates will offset the account balance increase somewhat. However, there is no waiting period to restart a new plan. Client should not file anything to reflect the former plan, just report that income subject to the early withdrawal penalty. As far as the IRS is concerned he never had a plan to begin with since there is no filing of intent to start a plan. This will also be fairly simple to report because the entire 1099R figure for 2009 on this IRA would be subject to the penalty.
A new plan could simply be started now using the 12/31/09 account balance, but check how much any lower interest rate would trim the distribution amount. Also, the client might qualify for other early withdrawal exceptions for at least some of the funds distributed in 2009. These exceptions are listed on p 53 of Pub 590.
Another potential solution would be to stick with the current plan for this IRA account if client has any other IRAs or employer plans that could be rolled over to start a second plan independent of the first plan. That would allow for higher distributions and client could avoid the penalty on the amounts taken in 2009 by continuing the first plan.
Permalink Submitted by Al Fry on Wed, 2010-01-06 20:38
It wouldn’t hurt to take a peek at the amount the RMD method would give him, since a switch to that method would not incur the 10% penalty. It usually is substantially lower than the other methods, however with the higher balance and the current lower interest rates, it may be worth a look. Plus it will take into account future increases (or decreases) in value.