L1: 72t Modification
I’m looking for the definition of ‘modification’ as it relates to a 72t IRA. Taxpayer has been taking SEPP from the 72t account for several years. In 2010, taxpayer rolled over additional PBGC funds into the existing 72t IRA account. The withdrawals from
the 72t account have not changed.
Does this rollover constitute a modification to the plan such that all previous withdrawals are now subject to 10% penalty plus interest?
My understanding is that modifying the payment schedule negates the exception to the 10% early withdrawal penalty. This rollover has not modified the payment schedule.
2011-09-08 15:47, By: bodo, IP: [18.104.22.168]
L2: 72t Modification
Sorry, but it appears to be a modification. Rev.Rul. 2002-62. Section 2.02(e)…
Changes to account balance. Under all three methods, substantially equal periodic payments are calculated with respect to an account balance as of the first valuation date selected in paragraph (d) above.
Thus, a modification to the series of payments will occur if, after such date, there is (i) any addition to the account balance other than gains or losses,
(ii) any nontaxable transfer of a portion of the account balance to another retirement plan, or (iii) a rollover by the taxpayer of the amount received resulting in such amount not being taxable.
2011-09-08 16:03, By: Gfw, IP: [22.214.171.124]
L3: 72t Modification
In general I agree with gfw.
However, this seems to be a situation where the beginning account balance may have been lower than it actually was because of a federal PENSION BENEFIT GUARANTEE payment that was delayed in being received by the account. This was an involuntary transaction
beyond the control of the taxpayer.
I believe that he has a valid defense IF the IRS ever figured out that there was an addition to the account. I would not “bust” the plan because of this transaction, and would wait to see if IRS ever issued a notice.
2011-09-08 17:13, By: dlzallestaxes, IP: [126.96.36.199]
L4: 72t Modification
It may be useful to understand exactly how the PBGC payment relates to the SEPP IRA account. Did a rollover of part of this pension go into the IRA before starting the SEPP? If the PBGC payment applied to a pension plan that
had no relation to the IRA, the SEPP would be busted, but if there is a direct connection and a rollover made without your request, you might get relief. But the IRA custodian will probably issue a 5498 showing a contribution, and that could be very costly.
At best, you might have to pursue a letter ruling based on the specific facts and circumstances.
This sounds similar to the “restorative payment” issues going on with all the class action suits that take a decade to pay out. The IRS allows these payments to be rolled back into an IRA, but that does provide clarification
relative to how the SEPP is affected.
2011-09-08 22:00, By: Alan S., IP: [188.8.131.52]