Christian Posted August 20, 2022 Report Share Posted August 20, 2022 A client retired early at age 55 and transferred his retirement account formerly provided and held by his employer to a personal IRA. Since he is not yet 59 1/2 he established a uniform withdrawal plan which is in place until he reaches 59 1/2 which exempts him from paying the 10% early withdrawal penalty. He now wants to take out more than he set up to withdraw annually. Will he pay a penalty on the amount above what he established to withdraw annually or the entire amount taken ? Will this negate his agreement going forward or are there exemptions to any penalty under a uniform withdrawal arrangement. Quote Link to comment Share on other sites More sharing options...
Lion EA Posted August 20, 2022 Report Share Posted August 20, 2022 Within the first five years of distributions? Why? Possible penalty dating back to first year! https://www.irahelp.com/slottreport/10-rules-know-about-72t It won't count as a modification if he makes a one-time change to a method that increases his distributions going forward: https://www.irs.gov/pub/irs-drop/n-22-06.pdf 2 Quote Link to comment Share on other sites More sharing options...
Christian Posted August 21, 2022 Author Report Share Posted August 21, 2022 He took his first withdrawal last year. He was retired for 11 months. Are you saying he can modify (increase) his annual distribution once and not incur any penalty ? Of course, I am assuming he will have to use this increased amount each year having made this change. Knowing him he likely will want another change next year ! I am astonished the fiduciary on this account does not handle this type of detail. Quote Link to comment Share on other sites More sharing options...
Lee B Posted August 21, 2022 Report Share Posted August 21, 2022 "7. Can I change from one method to another in calculating substantially equal periodic payments? Yes. Rev. Rul. 2002-62 permits a one-time change from either the amortization method or the annuitization method to the required minimum distribution method." The key phrase here is a "one time change" See Revenue Rule 2002 - 62 FAQs He would have to do this with the knowledge and assistance of his fiduciary. If not done correctly, the penalty is calculated on the entire amount taken. Quote Link to comment Share on other sites More sharing options...
Lion EA Posted August 21, 2022 Report Share Posted August 21, 2022 1 modification to an approved method, and then continue that modification. Read my links, Ed Slott the IRA expert and Notice 2022-6, and read the info from cbslee. 1 Quote Link to comment Share on other sites More sharing options...
Christian Posted August 21, 2022 Author Report Share Posted August 21, 2022 I have had time to review the info provided. I see precisely what you are saying. He is of the impression he can change his distributive amount at 59 1/2 which clearly is not the case as he will need to wait the full five years. He set this arrangement up with his selected fiduciary and I do not know which method they picked for his distributions. Worse when his first 1099-R form came in January the code in box 7 was 1. I called his broker to request it be changed to 2 and to my astonishment was told they did not provide tax advice. I attached the necessary form indicating the correct code. I recently received a call from the broker indicating his client wanted to make a change which he felt sure was ok but wanted to discuss it with me. I am going to photocopy the info from the Slott Report and provide it to my client and he and his broker can decide what is to be done. I thank both of you for clarification on this matter. Every other client I have served in the past who used this method for early IRA withdrawals have come to me with properly coded 1099-R forms but there always comes someone with his own set of ideas. 1 Quote Link to comment Share on other sites More sharing options...
Recommended Posts
Join the conversation
You can post now and register later. If you have an account, sign in now to post with your account.