72-T Commenced then Full IRA Distribution
Hi,
We have a client (in his early 40’s) who has commenced a 72-T, but now wants to do a full IRA distribution. Is there any restriction from doing a full IRA distribution once the 72-T has commenced?
It is my understanding, that the early distribution penalty will be retroactive back to dollar one and result in a 100% penalty in the year of the full IRA distribution.
Thanks,
TB
Permalink Submitted by Alan - IRA critic on Wed, 2023-05-17 19:33
This is another example of the risks of starting a 72t plan prior to age 50. The plan typically becomes sub optimal for one reason or another and many such plans are busted. Retroactive 10% penalty plus interest is the cost to bust the plan. A full distribution is rare however since the normal distribution is roughly 5% of the account value. A rollover can be done to preserve at least part of the IRA, and that will reduce the tax and penalty for a very large distribution.