72T early withdrawal
L1: 72T early withdrawalhi,,,i am receiving a monthly withdrawal from my72 t acct and i am under the age of 591/2. i am disabled at this time,,i was informed that i wont have to pay the penalties, but i am informed by my financial advisor that i will have to pay 10% to the govt every year at tax time for the money that i receive from this acct…is this true and why? thank you2011-03-30 18:01, By: dallas019, IP: [220.127.116.11]
L2: 72T early withdrawalIf you are “totally and permanently disabled” (as defined by this section of the tax code), then you should file a 5329 with a code 3 which is an exception to the 10% penalty.
THe “financial advisor” may be referring to the fact that you might be in the 10% INCOME TAX BRACKET, and that is the 10% he is talking about.
I suggest that you talk to a TAX PRACTITIONER, rather than a financial advisor, to get the right answer. I may be biased as a CPA, but I do not have confidence that most or many financial advisors have an adequate level of knowledge and experience to be advising people on tax matters, especially SEPP 72-T.2011-03-30 18:19, By: dlzallestaxes, IP: [18.104.22.168]
L3: 72T early withdrawalThe following is the disability definition you must meet for purposes of ending your 72t plan:>>>>>>>>>>>>>Q. What is the Definition of Disability for 72(t)?? A. The definition of disability can be found in IRC Section 72(m)(7). In one case,Dwyer v. Comm., 106 TC No. 18 (1996), the Tax Court agreed with the IRS and stated… For purposes of this rule, an individual is considered disabled if “he is unable to engage in any substantial gainful activity by reason of any medically determinable physical or mental impairment which can be expected to result in death or to be of long-continued and infinite duration.” The Code specifies that an individual must be able to furnish proof of his disability in whatever form and manner that the Service may require. The court noted that the regulations under Section 72 also state that an impairment that is remediable does not constitute a disability. >>>>>>>>>>>Your comment “at this time” suggests that you may not meet the requirement of long continued or infinite duration”. If you feel you do, at the very least get a written statement of that from your MD (better yet 2 MDs)in the event the IRS requests documentation. Then send a copy of that statement to your IRA custodian requesting that they code future 1099R forms with Code 3 (Disability). A custodian is usually much more agreeable to code your 1099R with a 3 than a 2 (SEPP) given sufficient documentation. You can end your plan even if the custodian does not agree, but it is to your benefit to push for the 3 coding as that will likely eliminate IRS concerns about your SEPP Distributions. Once you have ended your plan, you can take out as little or as much as you wish without penalty.I agree with dlz that the 10% comment probably reflects your marginal tax bracket, but is also likely to be an estimate rather than an exact amount.2011-03-31 03:00, By: Alan S., IP: [22.214.171.124]