When can my 72t be terminated?
Greetings, just found this forum…very impressed! I initiated a 72t about 13 years ago due to some health challenges that our family experienced; I committed to taking $10,641 annually until age 59.5, which I will be on 9/12/25. I have taken my annual distribution of $10,641 early each year, typically in January, this year as well. I assumed the IRS doesn’t care when the $ is taken, as long as it’s taken some time in the year I attain 59.5…reasonable thinking? Fallacious thinking? I have left this account alone since establishing the 72t…no contributions, no other distributions, etc. I retired 2 years ago, and established a new IRA for my 401k rollover $. At some point I’d like to merge these 2 accounts, but I’m not in a hurry. Also, I’d have no issue continuing to take the $10, 641 from the 72t IRA account, but it wouldn’t be ideal in 2026, as I have a decent sized deferred comp payout occurring next year. Thanks in advance for any input…my CPA will be queried about this at some point, they guided me 12 years ago regarding the 72t. If I didn’t find this forum, and also, if my CPA for some reason was reluctant to answer the question, I’d just keep taking the $10,641 annually…probably into perpetuity, as my other IRA has substantially more $ in it, and I can withdraw enough from that account to fund my lifestyle needs.
Permalink Submitted by Alan - IRA critic on Thu, 2025-05-08 10:14
Your plan ends on 9/12, but it is recommended to add a day as a safety margin which means that the plan automatically ends on 9/13.
Prior to 9/13, you have (had) 3 options. Take out nothing, take your full annual amount (which you did) or take out a pro rated amount by the month which would have been 2/3 of your annual. Any distribution other than the pro rate amount or the full annual would bust the plan.
After 9/13 you can do anything with the account, which includes merging it with other IRAs, converting it to Roth, etc. However, any distribution after 59.5 and before year end will produce an additional 1099R coded 7 since you would be over 59.5. I presume that your prior 1099R forms have been coded 1 (early), which would have required you to file a 5329 to claim the 72t penalty exception. However, there are a few custodians that will issue the 1099R with code 2, and if you get a code 2 you do not have to file the 5329. It will be simpler not to take another distribution this year to simplify your tax filing so that line 4 of your 1040 will contain the exact same amount as in prior years.
13 years is quite long for a 72t plan, and many people with that many years of distributions end up busting the plan at some point, so you are to be commended for successfully getting through the first 12 years.
To summarize, the only way you would bust the plan is to take another distribution prior to 9/13 which would result in exceeding the annual amount prior to the plan termination date. After 9/13 you can do anything, but it is probably simpler and safer to wait until 2026 before taking any other actions with this account.
There is no special filing or notification requirement with respect to the plan ending. You would just file like you did in prior years.
Permalink Submitted by Michael Schneider on Thu, 2025-05-08 11:46
Thanks Alan! You’re the best! I live near Lake Superior and have access to divine smoked trout, salmon and whitefish…would like to thank you with some!
Permalink Submitted by Alan - IRA critic on Thu, 2025-05-08 13:51
Thankyou Michael for the kind offer, but I do not accept any form of remuneration or gifts for any assistance rendered. Best to you in the future.
Alan
Permalink Submitted by Michael Schneider on Thu, 2025-05-08 17:07
Thank you once again, you’re a fountain of important info! Have a great day…Mike S