72-t withdrawal

You are here:
< Back

L1: 72-t withdrawalHave been receiving equal distributions under 72-t for approximately 2 years now but find that I must withdraw a small emergency amount. I know that I must pay penalty on everything previously received plus what I withdraw. I’m not but 57 and it hasn’t been five years so my question is do I redo this plan for another 5 years and continue to receive equal payments based on my balance after I take out the emergency money? Will any future installments be subject to 10% penalty or just what I will have taken out before the re-do?2011-03-16 17:00, By: steve, IP: []
L2: 72-t withdrawalHow much do you need, and for what purpose ? You might qualify under other exceptions, and therefore not bust the plan at all.If you do bust it, you owe 10% penalty on the cumulative withdrawls to date. You then can just stop the plan, or start a new one with your balance after your emergency withdrawal. But, consider the possibility of not locking yourself in for another 5 years, vs. just paying the 10% penalty on any withdrawals from your IRA over the next couple of years.2011-03-16 18:06, By: dlzallestaxes, IP: []

L3: 72-t withdrawalNo more than $20,000 with some going to Emory Nursing School for Daughter’s education expenses. I receive a little less than $1500 per month. How do you pay the penalty? Does it come out of the account directly or is there something that comes from the IRS directly?2011-03-16 18:31, By: steve, IP: []

L4: 72-t withdrawalThere was a recent case, that you can find on this site, which allowed Education Expenses to be taken without busting the plan. Check the details of this exception with your specific situation. You may qualify without having to bust your plan.If you do bust a plan, you report it on your next tax return, and pay IRS at that time the 10% penalty on all prior payments, in addition to the tax due on those payments. If you do bust the plan, discontinue taking future payments until you set up a new SEPP 72-T plan, or decide to just take payments as needed, subject to the 10% penalty on each payment.2011-03-16 21:52, By: dlzallestaxes, IP: []

L5: 72-t withdrawalWouldn’t it be more prudent to secure a student loan for the amount needed, and pay it off at the end of the SEPP? This would avoidthe 10%penalty, and not extend the end date of termination of the SEPP.2011-03-16 22:47, By: MrWillys, IP: []

L5: 72-t withdrawalHave started a business that I don’t think will show aprofit this year. If I have a business loss this year and report my penalty on 2012 return will the penalty wash out with the business loss so that I don’t actually pay any money if the loss is more than the penalty?2011-03-16 23:32, By: steve, IP: []

L6: 72-t withdrawalHave your accountant do a proforma tax return for 2011. If you do not have an accountant, you should get one.
The 10% penalty is a TAX, not a deduction.
The loss from the business would reduce the taxable income from the SEPP 72-T distribution. If you end up with -0- taxable income. you would owe -0- INCOME TAX and -0- Self-Employment Tax, but you would still owe the penalty.
Is your business a sole proprietorship, partnership, or corporation ( C or S ) ?
How much is the total cumulative distributions to date from your SEPP 72-T ?2011-03-17 02:47, By: dlzallestaxes, IP: []

L7: 72-t withdrawalThe following link comments on the tax court case Benz vrs IRS in which the court ruled that the extra distributions used to pay qualified higher education costs did not modify the SEPP plan:http://www.72t.net/Articles/Articleshow.aspx?WA=aa61d472-0237-4cb8-9e91-a5f3f52fa1a5If I understand you correctly, your SEPP annual distribution is 18k and you only need 20k so you can pay 2k for the education costs. If you still want to pursue this exception, be sure that the amount you distribute does NOT exceed your 18k by more than the education costs you actually pay for during the year. If you take out more than that, you will eliminate use of the Benz case to your possible advantage.Further, IF the above numbers are correct, it is a shame to possibly bust the plan for a mere 2k of expenses. You should try to get that limited amount from some other source if at all possible. Of course, if the 18k you are getting does not fit your future needs, then the strategy might entail busting the plan sooner rather than later, if you are only two years into the plan.Use Form 5329 to report the busted plan and pay the retroactive penalty. The IRS will probably bill interest for the late payments as well.2011-03-17 03:49, By: Alan S., IP: []