IRA Distributions

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A person has an IRA (rollover from a QDRO) and is not age 59.5 yet. She is currently receiving annual installment payments which qualify for no premature penalties. She would like to take a lump sum distribution from the IRA. Three questions:

1. If she takes this lump sum, does this cause prior installment withdrawals to be penalized?

2. Would the lump sum negate any future installment payments from penalty?

3. If she so decides, can she return any of the lump sum money within 60 day? Is so, are there any other consequences?

[Appleby]

1. Yes….and the installment payment [substantially equal periodic payments(SEPP) AKA 72(t) distributions] will be deemed to be disqualified/modified. Earnings will also be owed on the penalties that were waived for the previous payments

2. No. One can always start a new series

3. Yes. Returning the funds to the IRA within 60-days after receipt will mean that the amount is non-taxable and not subject to the 10 percent early distribution penalty

Should she decide to start a new series after taking the lump-sum, she may consider splitting the assets into two IRAs and calculating the SEPP payments on only one IRA. This would leave the second IRA available for ad-hoc lump-sum withdrawals when needed, and would not affect the SEPP.

[Guest Derelict]

1. If she takes this lump sum, does this cause prior installment withdrawals to be penalized?

Yes, the add'l 10% tax is retroactive.

2. Would the lump sum negate any future installment payments from penalty?

The 72(t) would have been 'busted' at the lump sum and therefore no more installments could occur under that series. AFAIK there is nothing to stop you from starting another series of payments under 72(t)...

3. If she so decides, can she return any of the lump sum money within 60 day? Is so, are there any other consequences?

Yes, the lump sum would not have been part of 72(t) payments (which are not eligible for rollover). This would still 'bust' the 72(t) payments.

[Appleby]

AFAIK-acronym for As Far As I Know.

Thank goodness for Google, or it would take me a long time to figure that out-with the possibility of a long time being forever

[John G]

If the person is close to 59.5 they may have a lot of interesting opportunities. Money is basically on sale right not (my often repeated mantra). You can arrange for a home refinance, reverse mortgage, magin borrowing on equities, signature line or bridge loan with very low interest rates. Spanning a couple of years via some loan mechanism to avoid any penalty issues is pretty easy to arrange.