What’s next after busting a 72t?

L1: What’s next after busting a 72t?If money was inadvertently added to a 72t account that was started during 2009, what happens next? As I understand it, it is now busted. 1) If you stopped taking distributions when it was discovered that additional funds were added, do you still have to take out the remaining amount specified for the year knowing that the additional amounts distributed will also be subject to the penalty and interest? 2)Do you voluntarily report the penalty and interest on the 2009 tax return for all money distributed in 2009? 3) Canyou keep the same account but start fresh for 2010 with a new calculated amount using the 12/31/09 balance? Thanks for your help!2009-12-29 01:09, By: Houston, IP: [75.8.118.6]
L2: What’s next after busting a 72t?1) No.2) Penalty=Yes. No interest should be due for a 2009 plan.3) Yes.2009-12-29 14:11, By: Gfw, IP: [216.80.125.206]

L3: What’s next after busting a 72t?Just curious – how was the money inadvertantly added to the account? There are a couple unique situations that may be exempted.2009-12-29 22:16, By: Alan S., IP: [24.116.165.60]

L4: What’s next after busting a 72t?I doubt that this is one of them…systematic transfers were “inadvertently” put in place to send the income generatedina non-72t IRA to the 72t IRA in order to make the distributionsquarterly. It went onfor 3 Qtrs before it was discovered. So, the plan is to pay the penalty for the 3 Qtrs of distributions and start over in 2010 for the 5 year minimum time period (which exceeds 59 1/2). I just want to make sure that it is not necessary to open a new 72t IRA and transfer asset into it to make a “fresh start”.2009-12-31 15:50, By: Houston, IP: [173.11.180.201]

L3: What’s next after busting a 72t?Thanks for the input!2009-12-31 15:51, By: Houston, IP: [173.11.180.201]

L4: What’s next after busting a 72t?You are correct. These transfers are not one of the exceptions, although you could try to hold the IRA custodian responsible if they did this without your knowledge, particularly if they were aware that the designated account was part of a 72t plan.There is no need to change the IRA account number. By simply reporting the amount you took out and paying the 10% penalty, the IRS will have no idea that you were originally intending this to be a 72t plan, and there is no need for any extra reporting. This will look like you just took early distributions subject to penalty.Then start your plan over in 2010, and be sure that all the details are properly addressed this time. If you have to bust a plan, the earlier the better.2009-12-31 21:47, By: Alan S., IP: [24.116.165.60]

L5: What’s next after busting a 72t?Please explain this to me. Are you saying once a 72t distribution is started, no account growth can take place? Or perhaps, no additional contributions can take place? thanks.2010-01-03 22:52, By: Big Tex, IP: [173.173.86.221]

L6: What’s next after busting a 72t?Big Tex,I’m not sure where you saw that quoted. The IRA(s) that are part of a 72t plancan grow or shrink based on your investment results, but you cannot add money to it or transfer money in or out of it –to or from other non-72t IRA’s, and you cannot withdrawother money out of it while a 72t plan is in effect on that SEPP IRA. In the case of the original poster, someone set up a non-72t IRA to pass money to the 72T IRA to help cover his withdrawals. That is not allowed. IF he had declared that 2nd IRA as part of his SEPP (or 72t) “universe” and included the balance from that 2nd IRA in his original SEPP payment calculation, I believe this transfer, since it remained within his 72t universe, would not have posed aproblem. KEN2010-01-04 15:26, By: Ken, IP: [71.192.120.143]

L7: What’s next after busting a 72t?This year a client of ours transferred a 72(t) IRA from one custodian to a number (a direct mutual fund to a brokerage firm). During the transition it was THOUGHT that two distributions had been not taken. We went ahead and requested the additional distributions in November. On December 30th we discuvered that teh two distributions HAD in fact been taken. This amounts to 14 monthly distributions taken in 2009. The Brokerage firm is saying the client cannot put the money back because that would be considered a contribution. The CPA is saying the client should put the money back. The Advisor wants to take just 10 distributions in 2010 to make up for the discrepency. I’ve search all over and can’t find anything relating to excess distributions from a 72(t) and whether that “busts” it. Any input/suggestions?2010-01-07 19:40, By: RikkrP, IP: [12.162.50.99]

L8: What’s next after busting a 72t?>>excess distributions from a 72(t) and whether that “busts” it.Excess distributions definitely “busts” the plan. With that said, there may be an option.Let’s start with… the advisor is wrong. The Brokerage firm may be right and may be wrong – you didn’t give enough information.The CPA appears to be right ifeligible and the excess distributions were received with the last 60 days, he/she may be able to roll the excess distributions back into the SEPP plan. 2010-01-07 20:19, By: Gfw, IP: [216.80.125.206]

L9: What’s next after busting a 72t?The problem with the rollback solution is the one rollover rule per IRA account. In this case there are two distributions that need to be rolled back, and it is the number of distributions, not the number of rollover contributionsthat determines compliance.That said, if within the last 60 days, one of the distributions came from the pre transferred IRA account and the other came from thepost transferaccount, it would be possible to roll both of them over. In effect, one would be rolled back to the account that issued it and theone issued from the former account could berolled over to the new IRA as well. The new IRA account would then be locked out of any more rollovers for 12 months.2010-01-07 20:55, By: Alan S., IP: [24.116.165.60]

L10: What’s next after busting a 72t?1) it’s a single distribution that was made in “double” the amount, so it would be a single rollback. (so there were technically 13 distributions in 2009, one was a double amount). 2) even if we put the money back in, the custodian will not reissue the 1099 which doesn’t really help any.3) this can’t be the first time this has happened???2010-01-08 21:45, By: RikkrP, IP: [12.162.50.99]

L11: What’s next after busting a 72t?Point #1- so probably qualifies for the rollover back to the SEPP.Point #3 – immaterial or spend about $9k or $10k on your own PLR.Point #2 -file a form 5329 to claim the exemption.2010-01-08 22:06, By: Gfw, IP: [216.80.125.206]

L12: What’s next after busting a 72t?Gfw is correct. If the two months were distributed in a single distribution, it is eligible to be rolled back within 60 days AS LONG as you not already used up your one rollover.You do not need a new 1099R. Just roll the extra months back and then report the amount as a rollover on line 15 of Form 1040. For example, line 15a would show the 14 month figure, and line 15b would show the 12 month figure with “rollover” entered next to 15b. This assumes that you have no basis in your IRAs and that your 72t distributions are 100% taxable.As for the 5329, you may need to file one anyway, as most custodians do not provide the exception code. In your case, just add the 5329 showing that your plan still qualifies for the exception code “02”.2010-01-09 19:16, By: Alan S., IP: [24.116.165.60]