Moving money to a Roth from a 72t account

[TravelingOtto]

Hi all. So I’m new at the whole 72t withdrawal deal. Earlier this year, I dove into the IRS publication data and did the calculation for 72t for one of my IRAs and took out the appropriate amount in order to avoid the 10% penalty. A couple of days ago, just before year end, I took money out of that same account to move to a Roth (I’m in year three of building out a Roth ladder). I realize now that I should have kept that money I intended to report as 72t this year pristine and withdrawn money for my Roth ladder from a different account. Does anyone know if there is a way to fix this or am I just stuck paying the early withdrawal penalty for this year and attempting to restart the 72t using new calculations for 2023?

 

[SnowballCamper]

You probably need to just pay the penalty, or hire a tax accountant. There are new changes summarized here https://www.kitces.com/blog/secure-...oth-rollover-increase-qcd-student-loan-match/

The reference I used when starting mine last year is here https://72tnet.com/wp-content/uploa...-To-SEPPS-and-IRC-72t-Bill-Stecker-4th-ed.pdf

As I understand one of the changes is to allow what you did, but I doubt it's retroactive to last year.

It probably depends on what account "Fracturing and Aggregation" you did, to use the terms of Stecker's Article. Good Luck.

 

[zinger1457]

The IRS did increase the interest rate that can be used for 72t calculations in 2022 to 5%. Did you use the full 5%? If you used a smaller amount maybe the total distribution falls within the 5% amount.
In any case I think what you did (Roth Conversion from an IRA being used for 72t distributions) is allowed and doesn't bust the 72t, assuming you have enough left in the IRA account to continue taking your regular 72t payments. You'll definitely will want to get some professional advice to confirm this.
https://www.irahelp.com/forum-post/...le-making-withdrawals-under-rule-72t-possible