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2020 CARES ACT: NEW STIMULUS BILL DOES NOT APPLY TO SEPP 72-T PLANS

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Posts: 193
Admin
Topic starter
(@dlzallestaxesmsn-com)
Estimable Member
Joined: 5 years ago

Section 2202 begins:

(1) IN GENERAL.—Section 72(t) of the Internal Revenue Code of 1986 shall not apply to any coronavirus-related distribution.

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Posts: 1
(@jatrickyday)
New Member
Joined: 4 years ago

Please clarify  if taking an IRA withdrawal,  up to the $100K limit in 2019, per qualifying for a Corona virus exemption, will or will not "BUST" my existing SEPP?....

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Posts: 193
Admin
Topic starter
(@dlzallestaxesmsn-com)
Estimable Member
Joined: 5 years ago

IT WILL BUST YOUR SEPP IF YOU TAKE "ANY" ADDITIONAL AMOUNT.

That is why I posted the regulation as soon as I read the CARES ACT. It is the first provision in the Retirement Plan section, even before the provisions about Early Distributions or RMD.

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Posts: 2
(@mullinmj)
New Member
Joined: 4 years ago

I'm sorry, but I'm trying to read this correctly?  You're saying CARES Act does not apply to 72t?  But, you're also saying it will bust the SEPP?  So, if I take a CARES Act withdrawal, it will violate my 72t(5-year) SEPP withdrawals(even if I continued making the SEPP withdrawals)?  I guess I thought the CARES withdrawal would be coded differently on the 1099?  Thanks in advance. 

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Posts: 193
Admin
Topic starter
(@dlzallestaxesmsn-com)
Estimable Member
Joined: 5 years ago

You misread the alert. The CARES ACT provision applies to ADDITIONAL distributions not being allowed for SEPP 72-T plans.

The headlines in all of the articles were for people, in general, who wanted to take distributions from their IRAs before age 59 1/2. Normally these would have been subject to the 10% EARLY DISTRIBUTION PENALTY.

Because of the COVID-19 pandemic, and related furloughs and layoffs, the government loosened the rules to allow people to take up to $100,000. These distributions would not be subject to the 10% penalty, but would still  be subject to the applicable addition to taxable income and the related federal income taxes.

In addition, these temporary regulations provided a "taxpayer friendly" provision that allows taxpayers to allocate the taxable income to 2020, 2021, and 2022, ( or to pay the applicable part of the 2020 taxes on their 2020, 2021, and 2022 tax returns -- there are different interpretations in different articles or explanations of this provision), or to repay any or all of it by the end of 2022. If they make any repayments, then taxpayers will be allowed to file amended tax returns for 2020, and recover the related amount of the taxes paid for 2020. 

HOWEVER, these other provisions do not apply to SEPP 72-T plans. The first sentence in this section in the CARES ACT specifically excludes SEPP 72-T plans from using these provisions. Only people who use this website would be affected by this. People with SEPP 72-T plans who do not use this website will probably know about this exclusion, and most tax practitioners and financial planners are not aware of it either because most of those professionals are not even familiar with SEPP 72-T plans, and the related nuances. 

 

 

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Posts: 2
(@mullinmj)
New Member
Joined: 4 years ago

So, I can not take a withdrawal without a penalty, until/unless I petition my congressional rep to amend the act? Bummer! Thanks 

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Posts: 193
Admin
Topic starter
(@dlzallestaxesmsn-com)
Estimable Member
Joined: 5 years ago

With Congress going on vacation, and the forthcoming election period, I doubt that anyone would even consider pursuing your unique request.

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