72 T frequency change rejection

Submitted by Jeffery Acheson on Wed, 2020-06-10 14:47

Client set up a 72T withdrawal from IRA one year ago with systematic payments from custodian payable semi-annually. They now want to change to one annual payment equaling the same total as the semi-annual payments. The custodian is staying this change can’t be accommodated until the 5 years has passed as she will then be age 62. I understand the total payment for the year can’t change but can’t find anything saying the payment frequency within the year can’t change. Anyone have any insights?



Submitted by Alan - IRA critic on Wed, 2020-06-10 16:39

  • The custodian is incorrect. The frequency and pattern of 72t distributions is irrelevant and can change within a year or between years. The only critical requirement is that the 1099R issued for the entire annual distribution matches the amount required to be distributed. The custodian is not likely to code the 1099R with exception code 2 in any event, so the client will need to file a 5329 every year to claim the exception code to the penalty.
  • Note that client has a 5 year plan. While not critical, it is best that client distributed the full annual total in 2019, then 2020-2023, and distribute nothing in 2024 until after the plan has ended (5 years from the date of the first distribution in 2019). Also, as insurance in case the plan is busted, if possible for the year in which client reaches 59.5 she should try to distribute more after the 59.5 date than before because if the plan is busted for any reason, the penalty will only apply to distributions taken prior to 59.5.
  • Above is consistent with how the IRS has been overseeing these plans for many years. Formal Regs on many questions are lacking other than RR 2002-62 which is silent on this issue.

Submitted by Jeffery Acheson on Wed, 2020-06-10 16:51

 — this is why I subscribe to Ed’s service. 

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