Breaking 72(t) and starting new one – waiting period?
With the new 72(t) rules from Notice 2022-6, I am wondering if someone can bust a 72(t) today and start a new one up immediately (using the new rates) in the same IRA?
In the back of my head, I thought if you busted a 72(t) on a certain IRA, you had to wait 12 months to start a new one on the same IRA.
You could immediately start a new one on a different IRA, I believe, but I was pretty sure that for busting/restarting on the *same* IRA, you had to wait a year.
Am I correct in my thinking?
Please and thanks!
Permalink Submitted by Alan - IRA critic on Thu, 2022-02-10 02:29
No reason that this cannot be done. The IRS addressed the voluntary bust of a 72t plan in PLR 199909059 (link posted below). I am not aware of any requirement that the new plan use a different IRA account or any particular waiting period, although the PLR addressed new plan started in January of the following year, but from the same IRA. Nonetheless, I think that a direct transfer to a new account is a good idea just to make it cleaner to the IRS that a new plan has been started. The 1099R forms would be issued for different account numbers. Separate accounts would be even more beneficial if the busted plan and the new plan were undertaken in the same tax year.
Obviously, busting a plan to take advantage of the new 5% interest floor will cost less the closer the bust occurs to the start of the busted plan due to a smaller retroactive penalty and interest bill. Doing this might also change the plan termination to a 5 year plan where the busted plan might have ended at 59.5.
It should also be clearer to the IRS that the plan is busted if something is done that automatically busts it such as making a new contribution or transferring an amount out to a non SEPP IRA account. A 5329 would then be filed to report the retroactive penalty, and the IRS will likely bill the interest.
It’s possible that the penaltized years may include other penalty exemptions that could be claimed on a 5329 and amended return for the last 3 open years. That would waive some of the penalties due for busting the plan.
9909059.pdf (irs.gov)