What account balance should be used for the 72t distribution computation?

Revenue Ruling 2002-62 states that the account balance that is used in a 72t distribution computation must be determined in a "reasonable" manner based on the facts and circumstances.

The example given is for an IRA with daily valuations that made its first 72t distribution on July 15, 2003. The IRS said that it would be reasonable for the first distribution to determine the yearly account balance using the RMD method based on the value of the IRA from December 31 to July 15.

For subsequent years, under the RMD method it would be reasonable to use the value of the IRA either on December 31 of the prior year or on a date within a reasonable period before that year's distribution.

72t distribution Example 1:

An individual has been given his early package for retirement, and using the RMD method, wants to begin 72t distributions on July 15. According to Revenue Ruling 2002-62, it would be reasonable to determine the account balance using the RMD method based on the value of the IRA on any day from December 31 of the prior year to July 15.

For distributions in subsequent years using the RMD method, the ruling states it would be reasonable to use the value either on December 31 of the prior year or on a date "within a reasonable period before that year's distribution".

72t distribution Example 2:

The individual in Example 1 is taking the second distribution on July 15 of the next year using the RMD method. Use of the account balance on December 31 of the prior year is reasonable. Use of the June 30 value is probably reasonable. Use of the March 30 value is probably not reasonable.

People choosing to use an account balance other than December 31 of the prior year or the previous month end account balance should consult their tax advisor to determine if use of such account balance is reasonable, considering their early package for retirement.