life expectancy option irrevocable or changeable

[jane123]

A beneficiary under a profit sharing plan elected to receive distributions over her life expectancy. She has taken distributions over her life expectancy for several years, but now she want to distribute the remaining balance this year, instead of continuing the life expectancy payments. Can she? or is she mandated to continue distributions by taking no more than the minimum amount each year. Can the plan require that she distribute no more than the minimum amount

[Guest KHayes]

How old is she?

[jane123]

She is now age 36.

Thanks

Jane

[Appleby]

As far as I know, the requirement is that at least the minimum amount is distributed each year to avoid the excess accumulation penalty. There is no rule that prohibits the individual from distributing more than the minimum amount or penalizes the individual from distributing excess amounts – at least not anymore …

Under the Treas Reg § 1.401(a)(9)-3, the election is irrevocable. IMHO, this just means that the individual cannot revoke the life expectancy option by changing the election to the five-year rule... more than the minimum can always be distributed

[SoCalActuary]

What is the applicable 72(t) penalty for pre-59 distributions that are not lifetime annuities? Does this person have another exemption?

Did I miss something in the reg's recently on this additional income tax?

[MGB]

Appleby,

You are reversing the situation. There is a maximum, not a minimum, amount at play here because they are taking distributions before 59-1/2.

If the person has taken the life expectancy amount for five years or more, they can now take the rest without affecting the first years' of payments. However, if they are under the five year rule, they must pay the early distribution tax of 10% on all amounts received to date.

Taking it all now will subject the remaining amount to the 10% (unless some other exception is involved, as SoCal stated).

[Appleby]

Actually , the question is about distributions to beneficiaries ( see Jane123’s question).

SoCalActuary- the exception would be “due to death”

MGB, since it’s actually a require minimum distribution (RMD), it would be a minimum , not a maximum.

[MGB]

Sorry, I've been working on Social Security rules and they use the term beneficiary to mean participant, and completely missed the reference.

[Appleby]

Tell me about it. It’s RMD season as you know, and more than once I made reference to the RMD rules when the other party was on a different topic. Side-effects of our trade