Taking additional funds from 72t in an IRA | Ed Slott and Company, LLC

Taking additional funds from 72t in an IRA

I have a prospect that has an IRA setup with another advisor and currently taking a 72t distribution. The client would like to take out an lump sum in addition to his 72t amount. He has been told that there is no way that he can do this without making the entire 72t amount subject to the tax and the 10% penalty. Is this accurate? Is there any way to allow him to make a withdrawal without triggering this event? Thanks for the help!

He has received correct advice - taking an additional amount out now would "bust" the 72t and he'd owe the 10% penalties plus interest for all prior years. One individual was allowed to take additional funds out for higher education but it took years and he needed to go to Tax Court for an OK. What should have been done was to split the IRA before he started and use one for the 72t and the other for withdrawals that qualify under other exceptions to the 10% penalty or to just have in an emergency where he's willing to pay the 10% on those funds withdrawn.

Make thoughts exactly. Thanks Mary for the quick response!

Your Thoughts... I am 51 yrs old and i am seperating from service with a lump sum of 700k along with 400k in a 401k. The combined 1.1 million at the 1.57 June Fed mid term rate will allow me to withdraw 42k per year. My plan is to put the lump sum into a variable annuity with a GMIB compounding at 5% for income and use the 400k from 401k as my 72t account while the annuity is still compounding @ 5%. What i do not like is the fact that i may use up all my liquid funds by the time i reach 59.5. I do have access to 10% plus any gains per year from annuity. your thoughts

Of course, annuities have their own expense related issues, but you can certainly establish a 72t plan that is calculated using the total balances of the annuity IRA and the non annuity IRA. You can then take the 72t distributions in any combination you wish between the two IRA accounts. Therefore, if the non annuity IRA is drained, you can finish the plan by taking your required distribution from the annuity IRA. It is possible that in a year where you take distributions from both accounts and get two 1099R forms, you may get an IRS inquiry, but there is no doubt that this is allowed, so you would just have to make your explanation. You will also probably be filing Form 5329 each year to claim your 72t exception for each 1099R that applies. For 2012 you have the choice to either distribute the full 42k OR pro rate the annual amount based on the month of your first distribution.

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