72(t) distribution once you turn 59.5
If someone starts taking a 72(t) distribution at 57, can they take more than the SEPP once they turn 59.5 since the 10% penalty is no longer valid? Or do they still have to stick to the 5 year SEPP and can’t take additional.
Also, from a reporting/tracking standpoint, do you notify the custodian that you are taking a 72(t) distribution so that the 1099(R) reflects that? Is there anything else you need to do?
Permalink Submitted by Alan - IRA critic on Thu, 2025-01-30 14:51
The plan must be completed and terminates 5 years from the date of the first 72t distribution. If they take out more than the calculation they will bust the plan and will owe retroactive penalty and interest for all distributions taken prior to reaching 59.5. But they will not owe the penalty for distributions taken after 59.5.
The IRA custodian should be told of the plan but not for each distribution, but few IRA custodians will code the 1099R with exception code 2 because they do not want to “underwrite” the accuracy of the plan. Therefore, most taxpayers will have to claim the penalty exception by filing Form 5329 showing exception code 02. The 1099R code will change to 7 after 59.5, and a 5329 does not have to be filed to change that.
Basically, the plan is between the taxpayer and the IRS.