The IRS recently issued updated guidance (Notice 2022-06) on whether a series of payments from certain tax-favored retirement plans and nonqualified annuities are considered a series of “substantially equal periodic payments” and exempt from early withdrawal penalties.
Section 72(t) generally imposes an additional 10% income tax on early withdrawals from tax-favored accounts such as Section 401(k) accounts, Section 403(b) plans, and individual retirements accounts—generally defined as withdrawals occurring before the participant reaches 59-1/2 years of age.
There are numerous exceptions to the additional 10% tax on early withdrawals, including an exception for distributions that are part of a series of “substantially equal periodic payments” made for the life or life expectancy of the participant, or the joint lives or joint life expectancies of the participant and designated beneficiary. However, if this exception applies and the series of payments is subsequently modified (other than by reason of death, disability, or a distribution to a public safety employee in a governmental plan) before the end of the five-year period beginning on the date of the first payment, or before the plan participant attains age 59-1/2, the 10% additional tax that would have been imposed is recaptured—plus interest for the deferral period.
The guidance in the notice replaces the guidance in Rev. Rul. 2002-62 and Notice 2004-15 for any series of payments commencing on or after Jan. 1, 2023, and it may be used for a series of payments commencing in 2022.
Contact:
Tax professional standards statement
This content supports Grant Thornton LLP’s marketing of professional services and is not written tax advice directed at the particular facts and circumstances of any person. If you are interested in the topics presented herein, we encourage you to contact us or an independent tax professional to discuss their potential application to your particular situation. Nothing herein shall be construed as imposing a limitation on any person from disclosing the tax treatment or tax structure of any matter addressed herein. To the extent this content may be considered to contain written tax advice, any written advice contained in, forwarded with or attached to this content is not intended by Grant Thornton LLP to be used, and cannot be used, by any person for the purpose of avoiding penalties that may be imposed under the Internal Revenue Code.
The information contained herein is general in nature and is based on authorities that are subject to change. It is not, and should not be construed as, accounting, legal or tax advice provided by Grant Thornton LLP to the reader. This material may not be applicable to, or suitable for, the reader’s specific circumstances or needs and may require consideration of tax and nontax factors not described herein. Contact Grant Thornton LLP or other tax professionals prior to taking any action based upon this information. Changes in tax laws or other factors could affect, on a prospective or retroactive basis, the information contained herein; Grant Thornton LLP assumes no obligation to inform the reader of any such changes. All references to “Section,” “Sec.,” or “§” refer to the Internal Revenue Code of 1986, as amended.
More tax hot topics

No Results Found. Please search again using different keywords and/or filters.