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avoid imposition of the 10-percent recapture tax under section
72(t)(4):
In addition, the recapture tax will apply if an
individual does not receive payments under a method that
qualifies for the exception for at least 5 years, even if
the method of distribution is modified after the
individual attains age 59-1/2. Thus, for example, if an
individual begins receiving payments in substantially
equal installments at age 56, and alters the distribution
method to a form that does not qualify for the exception
prior to attainment of age 61, the additional tax will be
imposed on amounts distributed prior to age 59-1/2 as if
the exception had not applied. The additional tax will
not be imposed on amounts distributed after attainment of
age 59-1/2. This 5-year minimum payout rule is waived
upon the death or disability of the employee.
H. Conf. Rept. 99-841, at II-457 (1986), 1986-3 C.B. (Vol. 4) 1,
457. It is evident that the 5-year period in section 72(t)(4)
closes at the end of 5 years from the date of the first
distribution; it does not end on the date of the fifth annual
distribution pursuant to a series of substantially equal periodic
annual payments.
In the case herein, petitioner received the fifth distribution
from his IRA in January 1993, slightly more than 3 years from the
date of the first distribution. Under section 72(t)(4), petitioner
was required to wait until sometime in December 1994 before he
could receive additional distributions that would avoid modifying
the prior series of substantially equal periodic payments. He did
not meet the required waiting period. Instead, petitioner received
his distribution in November 1993, prior to the close of the 5-year
period as provided in section 72(t)(4).
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Last modified: May 25, 2011