72t penalties

L1: 72t penaltiesMy wife has a 72t plan she has used since 2001. In 2007 she withdrew more than what she was allowed under 72t rules. On her 1099 form under distribution it changed from a #2 to a #1. Can anybody tell me what the penalties might be and does she need to set up another 72t? She will not be 591/2 until December. 2008-02-24 11:31, By: jrgs55, IP: [69.225.199.223]
L2: 72t penaltiesThat mistake will cost her a 10% penalty on all withdrawals thru 2007 from what I have read on this site, and the IRS can add interest to that penalty. As an example, if she took out $10,000 per year, or $70,000 (gross) over the last 7 years, she owes $7,000 to cover that 10% penalty for busting the SEPP 72(t) plan. Others can explain how the interest may be calculated by the IRS, and what to do for 2008. What bad timing, with her only one more year away from being past any penalties after Dec 2008.. If she sets up another 72(t) in 2008, she will have to let it run for another 5 years before she can do what she just did in 2007 without creating another penalty. It may be better to just keep going in 2008, and pay the 10% early withdrawal penalty on that year as well. Then in 2009, there is no more penalty for withdrawals.
KEN2008-02-24 13:59, By: Ken, IP: [151.203.42.107]

L2: 72t penaltiesYes, a very costly move considering the length of the plan and the proximity of the termination date of the plan.
While a very long shotat this point, but tomorrow is the 56th day of 2008, so if the entire excess amount was distributed on or after 12/28/07, and if you have the replacement funds, she could roll it back into the IRA and that would reduce the reported distribution back down to the required amount and avoid a busted plan.She must also not have used her one permitted rollover within the prior 12 months for this to work.
2008-02-24 19:16, By: Alan S., IP: [24.116.165.60]