72t and tax w/h

L1: 72t and tax w/hMy friends posed a question to me, and I am not knowledgeable enough about 72t”s to answer. So I need help.
They receive monthly payments and have been w/h fed taxes. They have just been informed by their investment company that they must start state w/h. My friends are concerned that this will change the amount they receive and will be penalized (possibly retroactively). My question is: Isn”t it the gross amount that cannot change, not the net amount?2006-06-27 11:46, By: mt@3400, IP: [66.76.129.73]

L2: 72t and tax w/hThe net amount is meaningless in the 72(t) calculation. As long as the gross amount does not change, altering withholding has no impact and is not considered a “modification” for 72(t) purposes. For example, if you were taking $10,000 per year under a 72(t) distribution schedule and you increased your withholding from 10% to 20%, you are still removing $10,000 from the account, you are just receiving $8,000 instead of $9,000. The $10,000 is all the IRS cares about.
Hope this helps.2006-06-27 11:50, By: Brian, IP: [12.155.246.10]

L2: 72t and tax w/hJust wondering do most investment companies w/h fed taxes? (and/or state?) We are starting our monthly distributions in July with a Credit Union who is new to 72t distributions, they are working with us, just need to know best way to proceed. Thanks – great site very helpful.2006-06-27 12:29, By: serenity, IP: [63.224.200.79]

L2: 72t and tax w/hYes, they all must offer withholding. However, with an IRA account you can select the percentage to be withheld and you can change it when you wish, or you can elect no withholding. Obviously, your decision should be based on your entire tax situation and adequacy of other withholding or estimated tax payments. As stated above, the withholding amounts have no effect on your 72t calculation. The amount of your 72t distribution is deemed to be the total of the amount you receive and the amount forwarded to the IRS and states, and that total must meet all the 72t requirements.2006-06-27 19:52, By: Alan S., IP: [24.116.165.157]

L2: 72t and tax w/hFor Serenity … your statement, “We are starting our monthly distributions in July with a Credit Union who is new to 72t distributions …” is a real scary comment.
My suggestion is for you to do some really fast studying on this web site, and use the calculators to confirm distribution amounts. I strongly encourage you to seek competent, experienced advice on your plan. You don”t want the credit union learning 72(t) on your nickle, and that”s what it will be if it gets messed up.
72(t) is a tax issue and unless the credit union has staff CPA”s or tax attorneys working this issue, you could be in for some unhappy times if there are errors. Also, it”s the taxpayer (you) who is responsible for correct calculations, not the credit union.
Good luck.
Jim2006-06-28 15:55, By: Jim, IP: [70.184.1.35]

L2: 72t and tax w/hThanks for the concern – we have been studying for more than a year now. We are using the calculators on this site to set the 72t distributions schedule. In our situationour credit union offered a great 5 yr cd rate – we feel comfortable with the security this offers and they are waving penalties for distributions just as they would for a person required to take distributions. (We found several credit unions who are doing this for SEPP plans). We are working closely with the credit union as we are their first 72t. Our cpa is aware that we are starting 72t distributions.2006-06-29 13:50, By: serenity, IP: [63.224.200.79]

L2: 72t and tax w/hHello Serenity:
If you are comfortable, would you mind disclosing the name of the credit union you are dealing with? I only ask this becuase I am working with CUNA (Credit Union National Association) in Madison, WI to potentially develop a training program for CUNA to distribute to its membership. It seems that, in general, credit unions are a little behind the times when it comes to SEPP plans.
TheBadger
wjstecker@wispertel.net

2006-06-29 16:57, By: TheBadger, IP: [66.109.211.254]

L2: 72t and tax w/hGood morning Bill. Hope all is well and you are ready for the 4th.
Creating a training program for credit unions is a good idea. I have found a great lack of knowledge in this channel in almost all areas of IRA subjects. I think one of the problems rests with the fact most if not all credit unions are running two separate operations … banking and brokerage … and sometimes personnel try to move from one arena to the other, and the transition is not always good. I have had clients go to the banking side and get totally wrong information about IRA”s.The correct thing would have been for the “teller” to send the client upstairs to the Registered Rep on the “brokerage” side of the operation rather than give out bad information. And the teller knew they were just guessing at the answer all along. Unfortunately the experience level of the repin the credit union, brokerage operation is usually very low.They usually have newly minted reps that take those positions as their first job right out of school.
Good luck.
Jim2006-06-30 10:09, By: Jim, IP: [70.184.1.35]