Midyear rollovers and IRA distributions 72(t)
I have been unable to find a definitive answer to my question about mid year rollovers and 72t distributions. I hope someone can help.
Both my wife and I plan on retiring and rolling our 403B monies into IRA’s.
We plan to roll the 403B’s into multiple IRA’s so as to add to our
flexibility. We plan on withdrawing from the IRA’s using 72(t) provisions
starting as soon as possible. The rollovers will occur in January and
February. What amount do we use to calculate the withdrawal amount since
there will be no balance in the IRA’s on Dec. 31 of the previous year?
I would guess if I were to rollover the 403B monies into one IRA for each of us then I could use the Dec. 31 value of the 403B account. But I would like the flexibility of being able to fall back on a lesser RMD amount if circumstances warrant. That is why I would like to break the 403B monies into smaller IRA accounts. Thanks for your time and consideration.
Permalink Submitted by Alan - IRA critic on Wed, 2017-09-27 16:37
If you are retiring in or after the year you reach 55, then you may not need a 72t plan. You could take penalty free distributions directly from the 403b plan, although the plan needs to offer flexible partial distributions for this to work. If circumstances eliminate this option, then you need to decide how to structure the IRA accounts. The basic requirement is that you can have more than one IRA as part of a single 72t account, or you can have more than one 72t plan using totally different IRA accounts. With either of those choices, you must use an opening account balance for the accounts in each plan that is reasonably close to the current balance. This balance cannot be from the prior plan, so you cannot use a 403b balance for an IRA 72t plan. If you are doing a direct rollover to fund the IRA accounts, you can use the IRA balance on any day up to the day of your first 72t distribution. If your IRA balance is high enough to fund your expected expenses, a common approach is to establish an IRA with the balance needed to generate that dollar distribution, with additional IRA accounts outside the plan available for emergencies, even though distributions from the other IRA would be subject to penalty. Or the other IRA accounts could be used to set up a second 72t plan later on once your first plan appears to generate less income than you need on a consistent basis from that point on. While you have all these options in structuring your accounts, remember that with 72t plans simplicity is best. You do not want to attract IRS attention to your plan by having too many moving parts.