72t
Hello,
I have a couple who are clients and they would like to begin taking monthly distributions (72t) beginning May 1 of this year. Here is an example of the problem. I have run the scenario on a 72t calculator and the husband (age 56) needs to take (lets say) $1,000/monthly or it could be $12,000/yr. from his IRA.
The client prefers to take monthly distributions, but I am concerned that while his 2017 1099 will report $8,000, his 2017 1099 (and subsequent years) will say $12,000 if he took annual distributions. This will of course happen because we only have 8 months left in 2017.
Will this violate the “substantially equal payments” rule?
Thanks!
Greg
Permalink Submitted by Alan - IRA critic on Mon, 2017-04-24 18:16
This is not a problem. The taxpayer is allowed to pro rate the opening year by the month or can also distribute the full annual amount, and the IRS is very accustomed to seeing the first year 1099R lower than subsequent years. If the client sets up monthly distributions, the distribution date should NOT be set very early or very late in a month. The 10th-20th are the best dates, as they avoid year end problems and leave time in the month to correct any errors in the distributed amount. Since client will have a 5 year plan, they will also need to take 4 months worth of distributions in 2022 before the end of the 5 year minimum distribution period.
Permalink Submitted by [email protected] on Mon, 2017-04-24 19:37
Thank you. I really appreciate your help! Greg