72(t) timing
Let’s say I have an IRA. I make a contribution in January, do a Roth conversion in February, make a withdrawal in March, and transfer another IRA to it in April. Am I clear to start a 72(t) schedule in May as long as stay within the rules from May until June + five years or until 59.5?
Permalink Submitted by Alan - IRA critic on Thu, 2022-08-25 19:39
Yes, but having a 1099R that includes both 72t and non 72t distributions will be confusing to the IRS and they may ask you for documentation of transaction dates. It would be much better to do a direct transfer of the balance to a new IRA account before starting your plan. Your 1099R for the former account will include non 72t transactions including the withdrawal subject to penalty and the conversion. The 1099R for the new IRA account will only reflect 72t distributions and you will probably need to file a 5329 for the amount on that 1099R to claim the penalty exception. The last non reportable transfer might include the entire balance of all your IRAs at that point, or it could leave a balance in the former IRA account to be used for emergencies or if large enough to start a second plan down the road. For your opening account balance used to calculate your distribution, you are limited to a balance in the new account prior to your first 72t distribution. You cannot use a balance before partitioning your IRA into the account you will use for the plan.