Advanced Underwriting Consultants

Question of the Day – February 7

Ask the Experts!

The professionals at Advanced Underwriting Consultants (AUC) answer the tax and technical questions posed by producers.  Here’s the question of the day.

Question: I have a client who has been taking substantially equal periodic payments based on life expectancy from her IRA.  Her intention is to avoid the 10% premature distribution penalty on money she receives.  She is currently 57 and has become disabled.  What effect does her disability have on her payments from the IRA?

Answer: Normally, once a series of substantially equal periodic payments is commenced, it must continue for at least five years or until age 59-1/2, whichever comes last.  If the arrangement is terminated or the payments are changed prior to that time, the taxpayer will be assessed the 10% penalty plus interest for all payouts prior to the later of five years or age 59-1/2.

However, Code Section 72(t)(4)(A) says you can discontinue the substantially equal payments for life stream in the event of the taxpayer’s disability or death.  That means no further payments are required in the event of disability.

Have a question for the professionals at AUC?  Feel welcome to submit it by email.  We may post your question and the answer as the question of the day.