72t Change

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L1: 72t ChangeQuestion…..I just began a 72t that came out to $29k gross per year. The custodian performed the federal withholding incorrectly (they shorted me about 15% of the money) and gave me too little money for the first monthly payment….My wish is to get “back on pace” for my $29,000 per year there by increasing my payments a tad the rest of the year (or just next month if that”s better) However, the custodian indicated that if I change my payments up or down, it wouldqualify for abreak in the 72t payments and could trigger a penalty.
My understanding was that 72t payments had to be taken at lest annually.So long as the correct amount was taken for the year…(i.e. the 1099 only has what was taken for the year) it didn”t matter weather you took it say quarterly, semi-annually, or more onemonth…..less the next, etc.
Is the custodian being over cautious here or do they chaning this and notreport a”2″ on the 1099

Any help would be great……2006-09-25 10:09, By: JAG, IP: [71.49.113.243]

L2: 72t ChangeYou are right as to the annual payment. You could take $1 on January 31st and $28,999 on December 31 and as long as you take the $29,000 you will be ok.
They might be being overly cautious or perhaps they have a wrong intrepretation as to the definition of the SEPP payment. In either event, if they don”t give you a code of 2 merely file 5329. In either event, just keep good documentation.
2006-09-25 10:31, By: Gfw, IP: [172.16.1.76]

L2: 72t ChangeHi JAG:
When you say, “I just began a 72t that came out to $29k gross per year,” does that mean your first distribution was in this calendar year (2006)? If so then you may have a chance to get back on track without increasing your gross distributions any. Since it seems that your problem is tax withholding by the custodian and not a distribution problem, then the custodian should be able to correct their problem and pay you the excess amount.
GFW can comment better on this subject, but my understanding of tax withholding works like this. Custodians withhold taxes and then pay them to the US Treasury and / or your state taxing authority. When errors are made the custodian has the ability to file corrections, just for cases like yours. So talk with your custodian, with your excellent documentation in hand of course, and prove to them their error and get them to correct things. Part of the correction is to send you the additional money they incorrectly withheld. This sould solve the problem without changing the distribution amounts and keep from “busting” your SEPP Plan.
If your situation covers multiple years, then simply have the custodian get the withholding corrected for distributions going forward. Remember that withholding is simply a “down payment” on your final tax bill. Any excess withholding should come back to you in excess refund of taxes paid, and that will get things straightened out also.
Jim2006-09-25 10:34, By: Jim, IP: [70.184.2.72]

L2: 72t ChangeThanks!!!

Just realized that the problem was my fault….I filled out the form starting with the net amount to w/d ($24,650) and they took 15% off that…Can I still get back on track?? From GFW is seems so…..Can I just try and ask them to not change any codes, etc for me??

I just startd this 9/20/06……2006-09-25 11:02, By: JAG, IP: [71.49.113.243]

L2: 72t ChangeI can”t imagine you having a problem getting this corrected since your first distribution was less than a week ago.
Jim2006-09-25 11:13, By: Jim, IP: [70.184.2.72]

L2: 72t ChangeThanks….

GFW….your thoughts??2006-09-25 12:12, By: JAG, IP: [71.49.113.243]

L2: 72t ChangeJust make sure that you take out the $29,000 (no more and no less) and you should be fine – this statement assumes that $29,000 was the actual calculated SEPP payment – no more and no less.
Whether you get a code ”2” or not… as I mentioned before, just keep good documentation and learn to file 5329 – it may even be included with tax programs like Turbo Tax. There are probably as many Trusee/Custodians that don”t issue a code of ”2” (in any circumstances) as there are that do.2006-09-25 12:18, By: Gfw, IP: [172.16.1.76]

L2: 72t ChangeThanks…..I mean it makes sense to me……of course this first year (2006) I do not have to have the whole $29k out by 12/31/06 since it just starteed 9/20/06 correct? Next year yes…..2006-09-25 12:26, By: JAG, IP: [71.49.113.243]

L2: 72t ChangeSince you started in September, youcould also take 4/12 x $29,000 or $9,666.672006-09-25 12:41, By: Gfw, IP: [172.16.1.76]

L2: 72t ChangeThank you Thank you……2006-09-25 12:45, By: JAG, IP: [71.49.113.243]

L2: 72t ChangeThere are really 3 aspects to your question/situation.
1. You calculated that your annual GROSS distribution will be $ 29,000.
2. You can take either $ 29,000 for 2006 cumulatively thru 12/31/2006 without there being any consistency of the various payments.
3. The federal (and possibly state) income tax withholdings do not modify the GROSS figure. They affect the NET PAYMENT.
If, for example, you took a NET payment of $ 24,650 that would be a GROSS of $ 29,000 – $ 4,350 taxes (15% x $ 29,000). But, let”s say you inadvertently received $ 20,952.50 (i.e. $ 24,650 – $ 3,697.50 taxes)(15%). Then you could receive another check for the difference of $ 3,697.50, bringing your total payments received up to the correct total of $ 24,650.
As mentioned before, you could also take a prorata distribution for 2006 of 4/12 x $ 29,000 = $ 9,666.67 less the 15% taxes of $ 1,450, or a net check of $ 8,216.67.2006-09-26 14:38, By: dlztaxes, IP: [4.175.9.67]