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March 6, 2009

Can I start a second SEPP/72(t) On Another IRA?

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Can I start a second SEPP/72(t) On Another IRA?

Question Is it permissible for me to start a second 72(t) Payment on a separate IRA, when I already have a 72(t) Payment Scheduled on another IRA?

Yes. You can do a 72(t) for each of your IRAs.

Generally, 72(t) calculations are done on a ‘per account’ basis. This allows the IRA owner to make additional non-72(t) withdrawals – if necessary- from the other IRAs, without affecting the 72(t) schedule of payments.

Additionally, if the IRA owner feels that he needs additional amounts on a consistent basis (as opposed to a one-time or infrequent basis); he may start a new 72(t) schedule of payment on another IRA.

Example 1

TJ has an IRA balance of $500,000. He wants to take 72(t) payments from his IRA, in order to avoid the 10% early distribution penalty. However, the $500,000 would produce much more than TJ needs. Therefore, TJ split the IRA into two IRAs (IRA #1 and IRA # 2), and takes the 72(t) from IRA #1.

Two years later, TJ needed an additional $5,000 to cover a one-time expense. He withdrew that amount from IRA # 2. This did not affect the 72(t) on IRA # 1.

Example 2

Assume the facts are the same as in Example 1. Except that TJ needed additional funds on a consistent basis, as his living expenses had increased significantly. TJ decided to take a second 72(t) payment schedule from IRA #2.

This is permissible, and does not affect the 72(t) under IRA # 1.

Written By

Denise Appleby

Denise is CEO of Appleby Retirement Consulting Inc., a firm that provides IRA resources for financial/ tax/legal professionals. She has over 20 years of experience in the retirement plans field, which includes training and technical consultation.

Denise writes and publishes educational /marketing tools for advisors; available at Denise co-authored several books on IRAs

Denise is a graduate of The John Marshall Law School, where she obtained a Masters of Jurisprudence in Employee Benefits, and has earned 5 professional retirement designations.
She has appeared on numerous media programs, sharing her insights on retirement tax laws.

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