I’ve got a client who is retiring early. He has roughly $1,000,000 in an IRA now which he could initiate a 72(t) with. That will not generate enough cash flow to support their needs.
He also has an additional $3 million in his employer’s ESOP which, under the terms of the ESOP, will not be available for an IRA rollover until August of the year after he retires.
Can he do a 72(t) with his current IRA and then when he rolls out the funds from the ESOP can he do a 2nd 72(t) with that? In other words, can you have two IRA’s both with 72(t)s at the same time?
Yes, a person can have two different 72(t) payment schedules from two different IRAs, but tread lightly. You did not mention your client’s age in your email, which has a significant impact on 72(t) distributions. For the uninitiated, a 72(t) payment schedule allows a person under age 59 ½ to tap their IRA accounts penalty free. However, the payments must continue for the LONGER of five years or until you reach age 59½. If your client is only 45, he is looking at a minimum 15 years’ worth of payments. A lot can happen in that time period, and 72(t) schedules cannot be changed. The payments are ineligible to be rolled over, and any missteps along the way could wreck the entire 72(t) schedule, potentially resulting in a 10% early distribution penalty on all previous distributions.
Dear Mr. Slott and team:
I hope you can help me. Despite reading much of the IRS web information, and many other websites on RMDs from IRAs, I have some remaining confusion on taking my first RMD. Here's the situation I have questions about: