72t

L1: 72tHello,
After reading some recent posted comments about a 72t, I have some concerns that a 72t I setup this month might be subject to the 10% penalty when I file my tax return for 2007. I am 56 and haven”t worked since I was 54. I rolled over my 401k monies into several IRAs almost 2 years ago. I recentlydesignated one specific IRA at Franklin Templeton as a 72t fund. Five equal payments will be processed. (One per year for the next 5 years)
The first check was issued all ready and deposited.
I have been assured by my financial advisor that the 72t has been setup properly and not to be concerned.
What would be your advice on what steps to take, if any, at this point in time?
Thanks,
Will2007-03-22 08:44, By: Will, IP: [64.12.116.143]

L2: 72tYou may, or may not have a problem – my guess, based on the limited information in your post, is that you have a problem.
The annual payment must be calculated based on one of the 3 acceptable formulas as outlined in Rev.Rul. 2002-62. Merely paying out over 5 years does not make a SEPP.
Start by totaling all of your IRA accounts and go to the calculator and start doing a few calculations. Even better, go to the reverse calculator and input the annual payment that you are receiving and calculate the amount that would have to be allocated to the IRA to fund the SEPP.
>>I have been assured by my financial advisor that the 72t has>>been setup properly and not to be concerned. I can”t tell you how many times I have heard a variation of the words, but they are seldom right and seldom have a knowledge of 72(t) or it”s operation.
Good luck!

2007-03-22 08:53, By: Gfw, IP: [74.136.109.63]

L2: 72tThere may be two approaches available here to reduce your exposure:
1) Active approach – get a copy of the advisor”s calculation used to determine the annual amount, then test it with the tools on this site. You are in your first year, so you can still make changes if needed to bring this year”s distribution into compliance. If you think you may be too high, you can roll some of the recent distribution back within 60 days to give you time to complete your analysis. Be careful of the one rollover rule, however.
If the amount is too low, you can just take supplemental distributions or reduce the interest rate used to match the amount received.
2) Passive approach – just get the advisor”s assurance in writing that his calcs are correct and that he is fully responsible for any errors in the original calc as long as you continue to rely on that calculation and take out that exact amount. That way, you have the basis for recourse against the advisor. The advisor would also have a greater fiduciary duty than someone at a discount broker that just reviews your own calcs. You might also ask the advisor if Franklin with provide the exception code 02 on the 1099R, ie. how does Franklin feel about their own advisor”s expertise in doing these calcs?2007-03-22 10:27, By: Alan S., IP: [24.116.66.98]