Separation From Service 72(t) Distributions
We seem to be finding mixed information regarding the availability of the 72(t) early distributions to avoid the 10% penalty.
At age 56, we have a 401k with a good value. Many sources are saying to roll the 401k to an IRA then apply for 72t payment options. However, on the IRS website, it states it’s not available to IRA accounts. We’re familiar with the 72t distributions. We just need to know what the process is to take it from the 401k to the correct position to request distribution options from the IRS.
Thank you,
Andrew
Permalink Submitted by Alan - IRA critic on Tue, 2015-07-21 19:51
Not sure I understand the question. First, if you separate from service in the year you reach 55 or later, you can take penalty free distributions from the plan without the restrictions of a 72t plan. If you separated prior to that year, you can establish a 72t plan for the 401k OR from a rollover IRA. You have much more flexibility if you use the IRA because you have more control of it than the 401k. You also cannot partition the 401k into more than one account where one account holds the balance needed to generate the exact 72t distribution required by your calculation. With an IRA you can create two or more accounts with the appropriate value in one of them for your 72t plan. I don’t know where you would see on an IRS site that an IRA cannot be used for a 72t plan. The vast majority of 72t plans use IRA accounts. Again, if you meet the age 55 separation exception, you can avoid a rigid 72t plan in most cases and just distrbiution the amount you need each year until 59.5.