72t Question

L1: 72t QuestionI retired at 55 and rolled my 401k and lump sum pension distribution into separate self-directed IRA’s. These IRA’s were used to fund my SEPP. As a result of a class action suit, I will receive additional funds from my pension with payment expected in a few months. My question is can I take this money to establish another IRA and draw from it at 59 1/2 keeping it out of the already funded SEPP without receiving any 10% penalty on the additional pension IRA or my already established SEPP?2010-06-02 21:15, By: moose, IP: [98.198.121.31]
L2: 72t QuestionI think the answer would be yes, and that would be preferable to confusing the IRS with an addition to your SEPP, and having to explain to them that it was not a contribution by you.By the way, too bad that you didn’t research before you rolled over your 401-K to an IRA in order to set up a SEPP. Did you ask your employer if he permitted periodic distributions from the 401-K ? That would have permitted you to take distributions between 55 and 59 1/2 without any 10% penalty, and without being locked in for 5 years.2010-06-02 22:21, By: dlzallestaxes, IP: [72.78.110.86]

L3: 72t QuestionI agree with dlz. You should not expose yourself to the time consuming challenge of convincing the IRS that this is not a new contribution to the IRA. A 5498 would be issued by the IRA custodian if they received the settlement as a trailing direct rollover transaction, so you are better off trying to prevent that from occurring. You should be able to take a distribution from the 401k for the settlement without penalty since you appear to qualify for the age 55 separation exception. Of course, it would still be taxable in addition to the taxable SEPP distributions. You would report it on line 16 of Form 1040, a different line than you report the IRA distributions.2010-06-02 22:37, By: Alan S., IP: [24.116.165.60]

L4: 72t QuestionThe “CAUTION” here is to check with your old K-plan administrator to determine IF you can direct the settlement funds into a different IRA account number. Normal process is for any trailing distributions, including settlement funds which you are receiving, to automatically be sent to the rollover IRA account. So you need to act QUICKLY if you are going to be able to direct these funds into a separate IRA account.Good luck.Jim2010-06-03 13:22, By: Jim, IP: [70.167.81.119]