No option on Distribution form to code 72T
I have a customer who is beginning a 72T distribution in March of 2021. He has a brokerage account with $283K and an annuity with $319K. Both will be used for Calculation purposes. The brokerage account distribution form has a box for 72T so I’m assuming the IRS will be notified that his distribution from that account falls under code 72T. The annuity with F&G however does not have the option to code their distribution form as 72T. Is this a problem when it comes to the IRS?
Permalink Submitted by Alan - IRA critic on Thu, 2021-02-11 16:38
No. Very few custodians will issue the 2 code in Box 7 because they do not want to underwrite the 72t calculation and execution to determine that the distribution actually qualifies. They use Code 1. But the taxpayer can then simply override the Code 1 by filing Form 5329 and entering exception code 02 on line 2. The IRS is very used to seeing these forms for 72t plan distributions.
Many people who use two IRA accounts in the calculation to generate a larger distribution take the entire distribution from the non annuity IRA. There will only be one 1099R and the more complex annuity will not be interrupted. Customer should just make a large notation to remind himself that the annuity is still part of the plan and subject to all the same limitations as the other IRA, except that no distributions are being taken from it.