72t bust

L1: 72t bustPlease pardon my unfamiliarity with some of thetechnical jargon concerning my question. I am 45 years old andhave been takingmonthly distributions under the 72t rule from my IRA since 5/04. I opted to take the largest payment amount that was available. My reason forstarting the 72twasto take advantage of the monthly distributions to supplement my income. I have since gotten a better paying job and now want to stop taking these distributions from my IRA to allow that money to be reinvested to grow myIRA.I see fromreadinginformation in this question and answer post that it is possible to bust the 72t.
My conceren is how will busting the 72t sepp I have been recieving payments from since 5/04 affect me? i.e.payment of interest and penalties.Also, should my situation change regarding my current employment and I should need to restart the 72t sepp in the future is there any reason that would prevent me from doing so? Thanks for helping me to understand this situation.
2006-09-06 09:10, By: Jack, IP: [71.241.176.207]

L2: 72t bustYou would owe taxes and a 10% penalty on all monies withdrawn from the plan”s inception until you ”busted”. Interest would also be due. After only 2 years, the consequences would be nowhere near as great at busting years from now.
There are calculators on this site that will help you determine your actual costs.
There is nothing to prevent you from starting a new 72t , although at your age I question the wisdom of doing so. As you alluded to, this is your retirement money.
Get educated about your options (Badger”s book is a good start), and talk with a trained professional you trust before going off willy-nilly. Good luck!
2006-09-06 11:25, By: Francis3, IP: [141.154.249.250]

L2: 72t bustFrancis3,
Thanks for your response to my question regarding busting my 72t. For clarification, if I have been paying the taxes on the money I recieved from the 72t sepp from inception, it appears I wouldowe the 10% for the early withdrawl on the total amount I have taken from the 72t and you alsomention interest.How is the interest calculated?
Thank you.2006-09-06 18:43, By: Jack, IP: [71.241.176.207]

L2: 72t bustInterest should not begin accruing until the due date of the first return, ie 4/15/05. The rate was 6% from then until 10/1/05 when it changed to 7%. Therefore, the interest should not be too bad, and is probably secondary to what the IRS might charge in penalties, which becomes more complex because of the variety of penalty types that exist.
Still, the excise taxes and interest or penalty would appear to be minor relative to paying extra ordinary income taxes for an extended period at marginal rates that increase due to your current job income on top of the SEPP payments. This sounds like a situation where a bust is far better than continuing payments you do not need along with the much more costly prospect of a future bust. It may be different if you were age 57 or so and only needed a couple years to complete the SEPP.
2006-09-06 22:03, By: Alan S., IP: [24.116.68.91]

L2: 72t bustHello Jack:
Certainly if you bust your SEPP plan you will owe the 10% surtax on all distributions from May, 2004 and subsequent. Additionally, you will owe a modest amount of interest, maybe an additional 10% on top of the 10% surtax. This would enable you completely terminate your SEPP plan and further, commence a new SEPP plan at any future date.
As an alternative, consider activating your one-time per plan switch to the RMD method. I am guessing you are currently withdrawing a number like $5,000 per year per $100,000 of original assets based on a then life expectancy of 40.7 years and a 4% interest rate assumption. If you were to switch to the RMD method now and use the Uniform table, your life expectancy would be 51.5 years; therefore an annual distribution of approx. $1940 per $100,000 of assets; e.g. 60% less than current. Might this be tolerable in order to avoid the 10% surtax?
TheBadger
wjstecker@wispertel.net2006-09-07 07:56, By: TheBadger, IP: [72.42.66.37]