72(t) SEPP – Annual Distriutions Question
Hello,
One of my clients wants to establish a new SEPP arrangement this year (2010) and begin his FIRST annual payment in December. Does the IRS require that he waits 12 calendar months before taking his 2011 annual payment, or can immediately take his 2011 payment in January?
I know that the 1099 only records the total distributions for the tax year, but I’m curious if there will be a problem if he is audited and the timing is investigated further.
Thanks for the help!
Permalink Submitted by Alan Spross on Tue, 2010-11-30 19:09
There is no restriction on the distribution pattern within or between years. Therefore, client can take the 2011 amount in January, take it quarterly, monthly, randomly etc.
But taking the full annual distribution early in the year creates some budgeting pressure since there the IRA cannot be tapped again until the following year. If there is that great a need for funds in January, perhaps the client should consider taking a full year out in Dec, 2010 rather than just 1/12 of the annual. He has that choice, and although it would obviously increase the 2010 tax bill, it would also provide some padding for the SEPP distributions for the length of the plan.