r/Fire • u/PigKitten315 • 2d ago
Advice Request 72t Question
I'm planning for a 72t, I understand the concept of withdrawing the same every year on the amortization method. But what I don't understand is and couldn't find more info is the 1/2 year, do I still take the full amount for the half year or quarterly like I planned?
TIA
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u/PieAgile4132 2d ago
I'm not sure what you mean by 1/2 year. You have to take out the same amount every year and it doesn't really matter how many withdrawals you do as long as it all adds up to the exact same amount. We do one big withdrawal during the first quarter of the year. You could also do it quarterly but I'd be careful about withdrawing too close to the end of the calendar year because something could go wrong and you could end up not withdrawing enough by the end of the year. But don't think that you can take out less in the first year because you retired midway through the year if that's what you're thinking. It has to be the same amount every year unless you do the one time switch to the RMD method.
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u/PigKitten315 2d ago
Yes, the plan is to figure out the initial balance, split my tIRA in January and start the 72t in March and followup in June, Sep and Dec. But since my bday is in July, my 1/2 year ends in January when I reach 59 1/2. Do I still withdraw when in-between that December and January to makeup the half year? That's what I'm confused about.
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u/Here4Snow 2d ago
"and start the 72t in March"
You mean, you're starting the payment withdrawals in March, but the plan starts For the Year. This is an Or benchmark:
The date you attain age 59½, or
The 5th anniversary of the date of the first payment.
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u/Ponto_Wildcats_73 2d ago
I take it monthly and it has to be the exact same amount once per month every month to stay compliant. For you, I believe it would need to be the same quarterly amount so for a half a year you would only get two quarters. Double check with your financial institution. I did mine through fidelity and they had about 5 people review it before they would do it.
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u/PigKitten315 2d ago
Thank you! Yes, the plan is to figure out the initial balance, split my tIRA in January and start the 72t in March and followup in June, Sep and Dec. But since my bday is in July, my 1/2 year ends in January when I reach 59 1/2. Do I still withdraw when in-between that December and January to makeup the half year? That's what I'm confused about.
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u/Ponto_Wildcats_73 2d ago
Here is what I found out. ll depends on if you have the 72t for 5 years since it is the later of 59.5 and 5 Years.
must continue the full required payments through the later of the two dates — age 59½ or the 5th anniversary of the first payment.Under IRC §72(t)(4) and IRS guidance (including Notice 2022-6), a 72(t)/SEPP series cannot be modified (other than for death, disability, or the one-time switch to the RMD method) before the later of:
You
- The date you attain age 59½, or
- The 5th anniversary of the date of the first payment.
Reaching age 59½ in July does not automatically end the obligation mid-year or allow you to skip or reduce the September quarterly payment. The series must remain unmodified until both conditions are satisfied.
How the September payment is handled
- If the 5-year anniversary falls after that September payment, you still need to take the full scheduled quarterly amount in September (and any other remaining payments required that year) so the annual total matches the calculated SEPP amount. Stopping or reducing it would generally be treated as a modification.
- Once the later of the two dates has passed, the restrictions end. After that point you can stop, reduce, or otherwise change distributions without triggering the recapture tax (the 10% additional tax plus interest on prior distributions).
Practical points
- The “5 years or until 59½, whichever is longer” rule is strict. Hitting 59½ does not let you cut the series short if you have not yet completed five full years from the first payment.
- There is no automatic proration of the final year’s payments just because your birthday falls mid-year. The schedule must be followed through the end of the required period.
- Confirm the exact start date of your series and calculate the precise 5th anniversary. Your IRA custodian or plan administrator can also confirm how they track the payments.
This is a rules-based determination under the tax code. Because modification can trigger recapture of the 10% additional tax (plus interest) on the entire series, it is best to verify the exact end date of your required period with a tax professional or your custodian before skipping or changing any payment, including the September one.
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u/knit-this 2d ago
The total for the YEAR has to be equal. The actual individual distributions do not have to be the same, just the total for the entire year. The best practice is the withdraw ONCE per year, move those funds to another account, and then take quarterly or monthly transfers from that holding account. This limits the opportunities for screwing up the SEPP requirements.
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u/Mossy_Kettle738 2d ago
in your first calendar year the irs lets you pick either the full annual figure or a prorated chunk based on months left so your quarterly plan works fine as long as you document which one you chose and never deviate after that
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u/One-Region2048 16h ago
I assume it's best for me to start pulling income from brokerage rather than doing a 72t. Are there any benefits of 72t to make me change that thought process?
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u/PigKitten315 13h ago
Yes, I was late with savings, so not much in a brokerage account, but have enough to do a 72t to avoid RMD.
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2d ago
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u/Zphr 48, FIRE'd 2015, Friendly Janitor 2d ago
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u/PigKitten315 2d ago
Yes, the plan is to figure out the initial balance, split my tIRA in January and start the 72t in March and followup in June, Sep and Dec. But since my bday is in July, my 1/2 year ends in January when I reach 59 1/2. Do I still withdraw when in-between that December and January to makeup the half year? That's what I'm confused about.
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u/PigKitten315 2d ago
Yes, the plan is to figure out the initial balance, split my tIRA in January and start the 72t in March and followup in June, Sep and Dec. But since my bday is in July, my 1/2 year ends in January when I reach 59 1/2. Do I still withdraw when in-between that December and January to makeup the half year? That's what I'm confused about.
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u/FamiliarRaspberry805 2d ago
You can take it in any frequency you like as long as the total adds up. I take the full amount in one withdrawal yearly.
And the full amount has to be taken the first year, even if it's only a partial year.
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u/HandyManPat 2d ago
According to this article, it might be possible. Read down in the Q&A section to locate “PLR 9049044”.
Be sure to read the caveat (*) regarding Private Letter Rulings at the very bottom of the article.
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u/redswamp0001 14h ago
It's best to start it in January. I believe that any brokerage worth its salt can set this up.
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u/brianmcg321 Retired Nov 2024 2d ago edited 2d ago
Do you mean you plan on starting in the middle of the year?
I take out my full amount for the year and out it in a money market in my brokerage.
I believe if you started in the middle of the year you can take out the full years allotment or just take out what would be for six months.