72(t) timing
Client opened IRA in August of 2019. Elected 72(t) in October of 2020 (no other distributions prior to the 72(t) election for 2020). Took the 72(t) distribution annually in 2020, 2021, 2022, 2023, and 2024. Client turns 60 in December 2024. Can the IRA be combined with another IRA in January 2025, or do we need to wait until October or November when the ‘true’ five years will be met?
Permalink Submitted by Alan - IRA critic on Fri, 2024-11-22 17:15
It’s the longer of 5 year from the date of the first 72t distribution or age 59.5. Therefore, this IRA cannot be combined with any other account before that 5 year period is complete, almost a year from now. In addition, no contribution or non 72t distribution can be taken until the 5 years ends.
If the client took a full annual distribution in 2020, there does not need to be any 2025 distribution prior to the plan termination date. But if a distribution in 2025 is needed, it must be for the same annual amount or it could be pro rated by the month (75% of annual) if the 2020 distribution was pro rated by the month (ie 25% of the annual).
In other words, for a 5 year plan, a minimum of 60 months worth must be distributed. It’s safer not to exceed that total.