72T distributions

You are here:
< Back

L1: 72T distributions
I am considering the penalty free withdrawals from my IRA under 72T to avoid the 10% penalty. Question 1: Can I do a partial prorated year yet for 2011? Question #2: I did withdraw $2000 early this year. Can I just subtract that for the 2011 calculatin?
Thank you.
2011-09-01 19:47, By: cshot, IP: []

L2: 72T distributions
If you start a plan, you can either take out your full annual amount AFTER the plan begins or you can pro rate the annual amount based on the month of your first 72t distribution. For example, if your first distribution was in
Sept, you could take out 4 months worth (1/3 the annual amount) or the full annual amount.
The previous distribution of 2k is unrelated to your plan and will be subject to the penalty unless you qualify for some other penalty waiver for that amount. Your 1099R will probably include your total distributions for the
year, and you would have to include a Form 5329 on your return to claim the 72t exception for all but that 2k. In that sense you would subtract the 2k from the amount for which you claim the exception, but you CANNOT in any way include the 2k in your 72t plan.

2011-09-01 20:15, By: Alan S., IP: []

L3: 72T distributions
What exactly do you mean “AFTER the plan begins”? Is this when I ask my plan administrator for the first withdrawal and any documents they need to be on file? Thanks in advance…
2011-09-01 20:54, By: cshot, IP: []

L4: 72T distributions
The SEPP plan begins on the date of the 1st distribution – for the plan to begin no other date matters.
2011-09-01 21:01, By: Gfw, IP: []

L5: 72T distributions
It seems to me that if the annual distribution is say $20,000, then he could take $18,000 before 12-31-2011 and count the previously distributed $2,000 as part of the total, annual distribution amount. In this case his SEPP Plan start date is the date the
custodian distributed the first $2,000, and the plan end date would be calculated from the date of the $2,000 distribution.
Am I missing something here?
Jim F
2011-09-01 21:31, By: Jim F, IP: []

L6: 72T distributions
“Technically” he had to have a PLAN established before he could start taking distributions. Essentially this is an ethics question.
2011-09-01 21:40, By: dlzallestaxes, IP: []

L6: 72T distributions
I agree with Dlz. While it is an ethics question, in an audit, it could create lots of other problems. Example… what interest rate is used. What documentation exists to have an earlier start date than when the plan is actually created?
Jim F… If he has a problem in an audit, I hope you are willing to stand by and help justify his plan. Also remember that this site is frequently monitored by the IRS and all that is needed to do a trace-back is the IP address and the GMT time, both of
which are included in a post.
Old expression… You only pay penalties for making a mistake, you could go to jail for fraud.
2011-09-01 21:49, By: Gfw, IP: []

L5: 72T distributions
For the account balance, can I use 12-31-10 or should I use a balance such as 7-31-11 which reflects the $2000 withdrawal? Thanks once again in advance…
2011-09-01 22:43, By: cshot, IP: []

L6: 72T distributions
Suggest the account balance after the withdrawal of $2k, 7-31-2011
2011-09-01 23:01, By: Gfw, IP: []

L7: 72T distributions
And then for the annual recalculation, would I use the 7-31 date each year or does itgo calendar year at 12-31-11 after this?
2011-09-06 03:51, By: cshot, IP: []

L8: 72T distributions
If using a recalculation method, you would have to recalculate based on your then attained age, the new accout balance and new interest rate… typically you would use 12/31… take a look at our
sample form.
If you are using either the amortization or annuity methods and annual recalculation, make sure that you really know what you are doing. You would be introducing a whole new set of complexities and possible problems.
2011-09-06 09:33, By: Gfw, IP: []

L9: 72T distributions
You are saying “a whole new set of complexities and possible problems” if I used a date for the annual valuation other than 12-31?
2011-09-06 21:30, By: cshot, IP: []

L10: 72T distributions
No. What I am saying is that if you apply annual recalculation to either the amortization or annuity methods that you wiil have “a whole new set of complexities and possible problems”.
You really need a complete understanding of SEPPs and how annual recalculation works. Personally, Iwouldn’t use any valuation date other than the previous year’s 12/31.
2011-09-06 21:37, By: Gfw, IP: []

L11: 72T distributions
I got it. I’m using the amortization method and there will be no change annually. It is what it is for the 5 years unless I need the 1 time exemption which probably won’t happen.
2011-09-06 21:58, By: cshot, IP: []

L10: 72T distributions
Read this if you are considering recalculation:
A 72t plan is essentially a calendar year plan, but if you want to choose a date for recalculation other then 1/1 using the 12/31 balance, you are introducing some fiscal year characteristics to your plan which the IRS is not
likely to understand. Each year your 1099R will still be on a calendar year basis, so you might have to explain not only why the amount differed each year, but that you figured the first 7 months worth using one set of input figures and the last 5 months using
different input variables.
Further, if this idea is driven by an attempt to make that 2,000 distribution fall under pre recalc figures and then changing over to a new recalc as of August, this would not work because you could not get the 2,000 to match
up with earlier required data. There is no way to make this work, so you are better off just to pay the penalty on that 2,000 figure and then start a normal non recalc plan when you wish, probably the sooner the better with interest rates falling each month.

2011-09-06 21:54, By: Alan S., IP: []