72t
I have a client wanting to take SEPP from their IRA. When using the 72t can he take SEPP all from one account but include the
balance of another IRA to come up with the dollar amount needed to take.
For example one IRA with all stocks and another IRA with an annuity. Can the payments all be taken from the stock account?
Also if you begin payments in JulybHow does the IRS view that since you are only taking 6 payments in the first year? Thanks
Permalink Submitted by Alan - IRA critic on Wed, 2015-06-17 18:32
Yes, the 72t calculation can be done using the balance of both IRA accounts, and both accounts will be considered subject to the 72t rules. The actual distribution can be taken in any combination from the two IRA accounts, therefore the entire payment can be taken from the IRA holding the stocks. For 2015, client has a choice of pro rating the annual distribution by the month (50% if first payment is distributed in July) or taking the full annual distribution.
Permalink Submitted by Lewis Young on Wed, 2015-06-17 19:28
AlanIf we begin to take all the payments out of the stock account for the first year and then decide we want to take the payments from a combination of the two accounts, say 5k from stocks and 5k from annuity, can that be done? Also should I let the custodian know that we are using 72t so they can code the 1099 differently
Permalink Submitted by Lewis Young on Wed, 2015-06-17 20:17
AlanIf we begin to take all the payments out of the stock account for the first year and then decide we want to take the payments from a combination of the two accounts, say 5k from stocks and 5k from annuity, can that be done? Also should I let the custodian know that we are using 72t so they can code the 1099 differently
Permalink Submitted by Alan - IRA critic on Wed, 2015-06-17 20:28
Yes, you can change the relative distributions from the two accounts, however it is likely to confuse the IRS and increase the chance of IRS questions. Therefore, even though this should be OK I would avoid it unless there is a real good reason. It would be simpler to just take all the distributions from one IRA so the 1099R forms will be the same every year. The other IRA is part of the plan only to increase the total value and therefore the total amount distributed. Very few custodians code the 1099R with the 72t exception code and probably none would with this kind of plan structure, and therefore the taxpayer usually needs to file a 5329 with their return to claim the 72t penalty exception. But even if the custodian will not code the 1099R, they should still be told if their IRA is part of a 72t plan.