Withdrawal from 72t
If someone has a large IRA and has been taking 72t distributions, can he keep making the same distribution from that iRA but rollover part of the IRA to another IRA and start a new set of withdrawals?
In this case he is now 60 so the new withdrawls from IRA No. 2 (spun off from IRA 1 with no change to the 72t payouts of IRA 1) would be penalty free.
However, the rules on 72t are tight so I dont want to endanger the 72t that is active. SInce the rollover is not really a change to the existing distribution (which would blow up the 72t pament plan and hit him with penalties on ALL his withdrawals to date), I feel it should be allowable.
Permalink Submitted by Alan Spross on Wed, 2011-02-09 21:44
Doing that would bust the current 72t plan once distributions from both IRAs exceeded the required 72t amount.
While there was once a letter ruling busting a plan for a partial transfer within the same 72t plan, generally if the new IRA is still considered part of the original plan and the total distributions from both still equalled the 72t required amount, it would be OK. But you cannot spin off another IRA and treat it as outside the 72t plan because the balance used to establish the 72t calculation in the first place cannot be used to fund distributions in addition to the 72t distributions already allowed.
In other words, spinning off the new IRA would not bust the plan because it would still be assumed to be part of the original plan, just an additional IRA account. And a distribution from the new IRA would probably also be OK, but once the total distributions from both IRAs exceeded the required amount, the plan would be busted.
If someone is now 60, they probably are not too far from the end of their plan. Note that if they bust their plan for any reason, the penalties due go back to the original year of the plan, but any distributions actually taken after age 59.5 will not be penalized.
There is a way to reduce the payouts by making the one time switch to the RMD method, but no way to increase the payouts until after the plan modification date.