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Assuming I am over 55 and decide to retire and start taking early distributions from my 401K under the Equal Payments exception*, using the calculation of my 401K balance/my life expectancy to determine the RMD amount, can I take more than the calculated RMD amount without incurring the 10% penalty? The definitions of RMD say that you can take more, but everything I can find about the RMD relates to taking it after 70**.
What I've read seems to indicate that I can, but I can't find a definitive answer. I don't anticipate living as long as the life expectancy tables indicate and I intend to leave nothing on the table when I die. If I do live longer than expected and run out of money, that will be my problem so please don't derail the thread with comments about that, please.
Don't know if I can stand it at work much longer, and trying to formulate a workable exit strategy!!!
Under the required minimum distribution method, the annual payment for each year is determined by dividing the account balance for that year by the number from the chosen life expectancy table for that year. See Rev. Rul. 2002-62 § 2.02(a) (life expectancy tables). With this method, the account balance, the number from the chosen life expectancy table and the resulting annual payments are redetermined for each year.
** https://www.irs.gov/Retirement-Plans...ibutions-(RMDs)
"Your required minimum distribution is the minimum amount you must withdraw from your account each year.
-You can withdraw more than the minimum required amount."
If you leave work and your plan does not offer periodic distributions then you have to roll it in to an ira and your only choice is to 72t it. Rmd's do not apply under age 70-1/2 . You have to be 59-1/2 if you don't 72t it to avoid the penalty.
The irs will give you 3 different withdrawal schedules to choose from until age 59-1/2. Take anymore or less and you blew it ,the penalty stays
Last edited by mathjak107; 02-13-2016 at 05:31 PM..
If you leave work and your plan does not offer periodic distributions then you have to roll it in to an ira and your only choice is to 72t it. Rmd's do not apply under age 70-1/2 . You have to be 59-1/2 if you don't 72t it to avoid the penalty.
The irs will give you 3 different withdrawal schedules to choose from until age 59-1/2. Take anymore or less and you blew it ,the penalty stays
Thank you for your reply. Where did you find the information that states that if you take more then you blew it? I have found back up for requiring that you take at least the RMD, and have found one source that seems to indicate that you can take more, but would like to know if you have a more definitive source. See the links I provided where they use the term RMD under the 72t exception, and the link where they say that you can take more that the calculated RMD but not less.
It may be that the IRS is using the term RMD for two different things.
Ok...well, the IRS says that's not correct. It specifically states that no penalty applies if the funds are depleted:
"Prior to 2002, Notice 89-25 provided that the additional § 72(t)(1) tax would be imposed if (i) at any time before attaining age 59 a taxpayer changed the distribution method to a method that does not qualify for the exception, or (ii) the taxpayer changed the distribution method within 5 years after the receipt of the first payment. Rev. Rul. 2002-62 modified Notice 89-25 by providing two exceptions to this rule. First, an individual is not subject to the § 72(t)(1) additional tax if (i) the payments are not substantially equal because the assets in the individuals account plan or IRA are exhausted, and ..."
But that doesn't answer my question. Where did you find the information that states that if you take more then you blew it? (see prior post)
Here is the best advice I can give you. I would call a professional consultant that deals with retirement funds, tax accountant, lawyer that deals in taxes, a financial planner that is experienced. Asking for free advice here is not going to help if you:
1) don't believe that person gave you good advice
2) took bad advice from someone here
3) didn't take good advice from someone here
4) didn't verify the information you got here with hard facts you found or got from a professional
I am just saying that you are in an open forum and the advice you are looking for might best be got from someone you can trust like a professional tax attorney.
Ok...well, the IRS says that's not correct. It specifically states that no penalty applies if the funds are depleted:
"Prior to 2002, Notice 89-25 provided that the additional § 72(t)(1) tax would be imposed if (i) at any time before attaining age 59 a taxpayer changed the distribution method to a method that does not qualify for the exception,
the taxpayer changed the distribution method within 5 years after the receipt of the first payment. Rev. Rul. 2002-62 modified Notice 89-25 by providing two exceptions to this rule. First, an individual is not subject to the § 72(t)(1) additional tax if (i) the payments are not substantially equal because the assets in the individuals account plan or IRA are exhausted, and ..."
But that doesn't answer my question. Where did you find the information that states that if you take more then you blew it? (see prior post)
That is the info above . You are just not understanding what they mean by not being able to stick to the amount of your plan if assets are depleted.
The exhausting they are referring to is not from modifying the payment schedule by drawing more then the schedule. It is because the assets fell in value and can no longer support having each payment meet the agreed upon amount and you will fall short on the ending amounts you are required to draw.
Any other modifications to your payment schedule you picked up or down triggers the penalty. That is why the irs is very strict in giving you 3 different payment options and doesn't just say here is your minimum amount and you can't take less then this but you can take more. You can only take more with rmd's not 72t's.
That is why rmd stands for required MINIMUM distribution.
The amounts are very carefully choosen you can take and quite specific in amount and anything other than is considered a modification unless market forces made it impossible to fulfill that amount and meet your agreement.
Just google modifying 72 t if you want to double check
Last edited by mathjak107; 02-14-2016 at 05:45 AM..
The irs publications won't help much since you need to undterstand what their terms mean like i explained above.
If you read it you think you can modify the schedule the irs gave because you are going to take more than the amount.
But the exhausting of assets exemption to the agreement is only pertaining to markets pulling your account value so low you can't stick to the agreement towards the last payments not because you modified the payment schedule on your own
Last edited by mathjak107; 02-14-2016 at 05:37 AM..
It’s important to know that the amounts you’ve calculated are and will be the exact figures for your payments from the account, no more, no less. It’s not allowable to simply name your own amount and take that amount each year – you have to use the prescribed amount from one of the methods.
The way to impact the amount of the payment is to adjust the balance in the IRA. If you have more than one IRA available, you can rollover funds into one account and therefore increase or decrease your payment. This has to be done prior to establishing the SOSEPP though – it’s not allowed for you to deposit money into or remove funds from your IRA while the SOSEPP is in place (well, other than the required payments from the account each year).
Any deviation from the prescribed payments will cause the SOSEPP to be “busted”, which can result in some not-so-nice consequences – which you can read more about here. For more about the SOSEPP, see the IRA Owner’s Manual.
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