60 day rollover on a 72t SEPP

Submitted by Scott Schaubhut on Tue, 2014-11-11 21:47

I’m trying to figure out if this scenario would bust the 72t and cause all prior distributions to be subject to the 10% penalty.

The SOSEPP payments have been in place for a couple of years, I’m in the process of selling and buying a house. I want to take a distribution from the 72t IRA for the down payment on the new home and roll the distribution back in when the old house sells. All hopefully with-in 60 days.

I called the custodian and they said it would be a modification and the 72t would be busted. Although, they could not send me any information to back up their position. It is an annuity but I don’t think that would make any difference.

I’ve researched at length and can not find a definitive answer either way.



Submitted by Alan - IRA critic on Tue, 2014-11-11 22:58

  • While a 72t distribution cannot be rolled over, the IRS considers a 72t distribution to be the calculated annual distribution under the plan. Once satisfied for the year, additional distributions are NOT 72t distributions and are rollover eligible. If the calculation is $x and you have already withdrawn that amount, you can take out more and roll it back within 60 days and your plan is intact. Separately, you also have to be eligible for a rollover under the one rollover per 12 months rule. Till the end of this year, the one rollover rule applies separately to each IRA account you have and starting next January the rule has changed to apply to all your IRA accounts in total. These rollover requirements are not affected either way by your 72t plan.
  • The custodian is incorrect. However, there is no direct documentation to support either my position or theirs. They will issue a 1099R coded 1 (early) showing the total amounts distributed. You would then report a rollover on line 15b which would then leave the taxable amount of the distribution on 15b exactly equal to your 72t distribution. You then file a 5329 to claim the 72t penalty exception, and are probably doing that already. In fact, not doing a 60 day rollover in a plan is often recommended as a safety valve if you make an error and take out too much for your last distribution. You can then roll the excess amount back into the IRA within 60 days to salvage your plan. Taxpayers have used this type of safety valve without any problems and it is really no different than what you propose to do. Remember, you should not take your extra distribution until you have completed the 72t obligation for this year. Fortuneately, year end is near. Doing this after the first of the year would require you to complete your 2015 72t distribution entirely and then take out the additional amount. There is nothing in the tax code that refutes this treatment.
  • I assume that you are not eligible for the first home exception that would give you 120 days to complete the rollover if the deal fell through. But if your sale house is a rental, you might be eligible. Please advise if you think you are eligible for the first home treatment. My example above also assumed you have no basis in your IRA accounts and you have no other IRA accounts. If you have basis (Form 8606), this still works but the taxable math is determined by the 8606. 

Submitted by Jessica DeBold on Wed, 2022-11-23 16:56

Is this rule valid that a 60-day rollover can be done during the 72t?  Everything that I find, with the exeption of this post, indicates that any rollovers into or out of the applicable IRA will bust the 72t.  Is it becuase the 60-day rollover doesn’t permantly alter the value of the account? 

Submitted by Alan - IRA critic on Wed, 2022-11-23 20:07

The “changes to the account balance” paragraph in the revised Notice 2022-6 issued early this year has been slightly changed from the former RR 2002-62. Prior to the new Notice, it was OK to protect your plan after taking out too much by rolling the excess back into the plan IRA, producing the correct 72t distribution. No harm done. While the new version makes even this type of rollover suspect, if you have already busted the plan by taking an excessive distribution, what do you have to lose by rolling the excess back, correcting the error?  You never could permanently alter the IRA balance by rolling new funds in, or rolling additional funds out.

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