# 72T-penalties if “bust” on purpose

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L1: 72T-penalties if “bust” on purposeMy SEPP will run out of funds in Dec. I have put # aside to use as a “brifge” until I am 62(3 years) and take early SS.
Here is my dilemma.My wifes SEPP will still have about \$16,000 init, and is drawing down at only \$131 monthly.
I would rather “bust” it, take the lump sum, Even if it ultimatley is 50% of what is left,as opposed to letting it dribble at that small dist. amount.It has been in place since April 2000. I know about he 10%, but unsure how to ballpark figue the penalty to inception.Any help?

mj2009-07-05 21:39, By: pomomofo, IP: [207.200.116.134]

L2: 72T-penalties if “bust” on purposeThe penalty itself is 10% of the amount distributed under the plan from the beginning of the plan. If your wife’s annual SEPP distribution has been only \$1,572 for the last 9 years, then the annual penalty is \$157 X 9.33 years or around \$1465.
I do not know exactly how the IRS figures interest on the penalty, but if they use the quarterly underpayment percentages, you might figure that 7% might be the average over those 37 quarters. Theinterest for the first yearwould be small since it is only applied to one year’s early withdrawal penalty. The next year would be on two years etc etc up to 9 years at present. My rough numbers amount to \$11 for each individual year of penalty plus carryover amounts for a total of \$605. But don’t expect my rough math here to be particularly accurate. Still, this is far less than 50% of what remains in her account.
While her distribution is small, forfeiting even \$2000 to the IRS for intentionally busting the plan does not make sense unless youbadly need thesefunds.2009-07-06 03:03, By: Alan S., IP: [24.116.165.60]

L2: 72T-penalties if “bust” on purposeWhy don’t you tell us your wife’s date of birth ( and age) ? Since she has already had her SEPP more than 5 years, she only has to reach 59 1/2 before she can terminate her SEPP without penalty. There may be a better way than throwing away \$ 2,000 for the government to waste.2009-07-06 03:10, By: dlzallestaxes, IP: [96.245.168.66]