Blown 72(t)

Submitted by Robert Wright on Tue, 2015-10-06 18:27

I was taking 72(t) withdrawals from a Traditional IRA.

I am 62 this year.
I started the withdrawals 5 years ago when I was 57.
So my monthly 72(t) withdrawals had to last 5 years = 60 months.

Problem: I had taken 59 withdrawals from the TIRA and then did a custodian-to-custodian transfer of 100% of the TIRA account before the 60th monthly withdrawal was taken. Yes, I messed up the timing on my transfer.

Is there any way to “cure” this or did I irrevocably blow up the 72(t) withdrawal?

Can I avoid the penalty on all of the previous 59 withdrawals by putting the money back into the original TIRA from which I was taking the 72(t) withdrawals and take the final, 60th, withdrawal or am I just screwed?

Thank you in advance for your help.



Submitted by Alan - IRA critic on Tue, 2015-10-06 18:48

A transfer of the IRA to a newly opened IRA is permitted. The new IRA cannot have had a prior balance. But the problem here is that because you have a 5 year plan, the modification date (termination) is fixed at 5 years from the date of the first 72t distribution. Has that date passed?

Submitted by Robert Wright on Wed, 2015-10-07 14:23

Yes, August 7, 2015 was the 5 year anniversary of the first 72t distribution.

Submitted by Alan - IRA critic on Wed, 2015-10-07 16:32

  • That is unfortunate, since if the modification date had not yet passed you could simply ask for the remaining monthly distribution from the new IRA custodian.
  • While the odds of the required perfect match are extremely slim, you do have the option of doing a one time switch to the RMD method. When you do that you use the 12/31/2014 balance and you have a choice of using either the Uniform Table or the joint life table to figure your RMD method annual SEPP distribution. That would produce two different figures for you to see if they happen to match up to the distributions you took this year prior to 8/7.
  • While the switch to the RMD method should be done effective 1/1, the IRS has never indicated that it cannot be done midyear. Therefore, if you want to do alot of math you could try to match the amout you distributed this year with a calculation based on switching to the RMD method in various months before August. Note that the RMD method will generally reduce your distribution around 35%. If you took out 6 out of 7 months this year you are around 14% below the requirement, so you have a better chance to produce a calculation that matches the amount you took out if you make the switch maybe around April.
  • Most likely you will not be able to produce a match, so if you bust the plan it is at least a plus to note that you only owe the retroactive penalty and interest (IRS figures interest) for distributions you too PRIOR to 59.5. You also do not have to amend any returns, you would report the busted plan and pay the retroactive penalties on your 2015 return Form 5329 with an explanation attached.

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