72(t) Bust Calculation

L1: 72(t) Bust CalculationI’ve finally had enough. After starting my 72(t) withdrawal in early 2000 at age 52 at the peak of the stock market, I have seen my IRA erode in value at an alarming rate over the past two years. Added to this erosion, of course, are my annual 72(t) withdrawals. So I’ve come to the conclusion that it’s time to bite the bullet and get out of this deal. I have gone back to work full time so income is not a problem.I would like some help in determining the cost for release from the obligation to take any further withdrawals. I took $85,000 out in the year 2000 and $85,000 in the year 2001 and I have yet to take any withdrawal for 2002. As I understand it, the penalty is calculated as follows:1. 10% for each year of withdrawal or $8,500 + $8,500 = $17,0002. Plus interest on the penalty of $17,000, but I’m not sure of the rate or the termQuestions:1. Is my understanding of the calculation of the penalty correct?2. What is the common practice for determining the rate of interest and the term?3. When do I need to pay this penalty and to whom is it paid?4. Have there been any PLR’s lately that address this situation that might ease my pain? I’m sure I’m not the only one who is facing this dilemma.Thanks2002-02-19 17:01, By: RBStanley, IP: [127.0.0.1]
L2: RE: 72(t) Bust CalculationYour penalty calculations appear to be right. The IRS will calculate the amount of any interest on past due taxes. You may also want to visit with your accountant.There are many individuals in the same boat, but to date I have not heard of any favorable rulings that would help your situation.2002-02-24 05:57, By: Gfw, IP: [127.0.0.1]

L2: RE: 72(t) Bust CalculationUnfortunately, there is no case law and no PLR’s on the subject of busted SEPPs other than the obvious; if you voluntarily/prematurely terminate your SEPP program you will owe the 10% surtax and intervening statutory interest. However, what if a taxpayer juduciously starts a SEPP and the underlying assets literally exhaust themselves prematurely? The answer is unknown; however, there are concepts & theories that swing both ways as to whether the 10% surtax & interest would be due. Since you are contemplating termination of your SEPP anyway at a cost approaching $20,000, I would suggest you look toward a potentially cheaper path; e.g. one of continuing the SEPP, allowing the IRA to exhaust itself prematurely but also attempting to acquire a favorable PLR for yourself that protects you from the penalty in some future year.If you would like to discuss this concept further, feel free to drop me a note @ wjstecker@wispertel.netTheBadger2002-03-02 09:42, By: TheBadger, IP: [127.0.0.1]