72t account with education withdrawal

L1: 72t account with education withdrawalI have a client who is taking 72t from an IRA account. He now wants to take some additional funds for college tuition. I know the tuition withdrawals generally are exempt from penalty but if they are taken from an account currently under 72t(since 2001) will this be deemed a disruption of the 72t payments?
Thanks2005-04-26 18:01, By: Steve, IP: [68.123.117.162]

L2: 72t account with education withdrawalSome say that it is a grey area. However, here is the the code, pay particular atteantion to 72(t)(4)(A)(ii)…
72(t)(4) CHANGE IN SUBSTANTIALLY EQUAL PAYMENTS. —
72(t)(4)(A) IN GENERAL. –If —
72(t)(4)(A)(i) paragraph (1) does not apply to a distribution by reason of paragraph (2)(A)(iv), and
72(t)(4)(A)(ii) the series of payments under such paragraph are subsequently modified (other than by reason of death or disability) —
72(t)(4)(A)(ii)(I) before the close of the 5-year period beginning with the date of the first payment and after the employee attains age 591/2 , or
72(t)(4)(A)(ii)(II) before the employee attains age 591/2, the taxpayer”s tax for the 1st taxable year in which such modification occurs shall be increased by an amount, determined under regulations, equal to the tax which (but for paragraph (2)(A)(iv)) would have been imposed, plus interest for the deferral period.
From the same account is questionable. From a non-related (to the SEPP) account, ok!2005-04-26 18:26, By: Gfw, IP: [172.16.1.70]

L2: 72t account with education withdrawalThis issue has come up repeatedly over the last five or years; e.g. a taxpayer has an IRA and is currently taking SEPP distributions and wishes to take an additional distribution from the same IRA for a different qualified reason; medical expenses, first home purchase, etc.
As pointed out, IRC 72(t)(4)(A)(ii) says the series of payments…are subsequently modified (other than by reason of death or disability)۝. Thus, at 1st glance, one would come to the conclusion that an extra distribution would modify the series therefore disqualifying the SEPP plan. However, there may be an alternate interpretation; that the SEPP distributions are or were not modified at all but instead only the account balance was, in a sense, modified by this extra distribution; therefore no plan modification has occurred.
Following this line of thinking, Revenue Ruling 2002-62; .02(e) Changes To Account Balance specifically addressed this issue by identifying three circumstances that will constitute a modification۝; (1) any addition to the account; (2) a nontaxable transfer from the account; (3) a rollover resulting in non-taxability. Noticeably absent from this list is any form of an additional distribution for other qualified (or for that matter unqualified) reasons. One would think that since the IRS took the opportunity to address this issue in the ruling that they would have added reason #4 or broadened #1 to cover this situation. Obviously, they did not so we are left to speculate on its omission.
Was it (1) simple oversight; (2) the IRS thinks it is so obviously an modification۝ that it wasn’t worth mentioning; (3) for some reason the IRS specifically did not want to address this issue; (4) the IRS is waiting for a taxpayer to ask the specific question at which time they will rule?
For what it’s worth, I am fairly confident that reasons (1) and (2) are inapplicable. When issuing rulings, the IRS rarely makes oversights or mistakes; similarly, the IRS is usually painstakingly accurate to the point of verbosity literally leaving no stone unturned case in point, try reading the 1.401(a)(9) regulations some 250 pages just to figure out required minimum distributions. This leaves us with reasons (3) and (4).
Thus, I would suggest that there is a window of opportunity here. I don’t know how big the window is and similarly can not profess to know the right answer beyond my own opinion. What we need is a taxpayer willing to step up to the plate with the IRS and request a private letter ruling on this specific issue.
TheBadgerwjstecker@wispertel.net
2005-04-27 08:57, By: TheBadger, IP: [66.250.23.21]

L2: 72t account with education withdrawalYes, this question has been bashed around for a long time with no answer. While the PLR option is available, it is probably not financially feasable because the cost to process is so much greater than the potential benefit derived. It would be a great burden for one taxpayer to bare. I have an aleternative suggestion.
Congress created the mess so let’s get Congress to clear it up.
If TheBadger and GFW will get together, as I know they have been known to do on occasion, and create a proposed change to the tax law with the proper legal cites and wording, then I think the participants on thes forum can get the job done. Y’all write the letter and attachment and post it on this web site and we can copy, put on our letterhead, sign and mail to our respective Senators and Representatives. Gordon, you know how many people use this board so you will have an idea of the potential impact. If a many thousands of people from across this great land of ours hit their Senators and Representatives with a flood of letters stating the same thing, I think we can get this problem solved. $1.11 for 3 stamps … let’s do it before the rates go up … and a little time and printer paper, and I really think this problem can be solved.
Jim2005-04-27 11:36, By: Jim, IP: [70.184.1.35]