L1: 72t terminationI have received distributions from a 72t since retirement in April 2014 at age 57. A recent health scare with my wife brought us face to face with our mortality and we would like to terminate 72t. Currently recieve 1099R, box 7 code 2, and a tax rate of abt 15%. What penality will apply and how do I terminate the 72t?2017-06-22 17:13, By: Unsure1411, IP: [184.108.40.206]
L2: 72t terminationSorry to hear of her health problems.
I assume that you are busting the plan in order to increase your distribution. If so, the retroactive 10% penalty and interest would only apply to distributions made prior to reaching 59.5.
You should tell your IRA custodian that you are busting the SEPP and to drop the 2 code for 2017. They will issue a 1 coded 1099R for 2017 distributions taken prior to 59.5 and another for distributions taken after that coded 7. Any retroactive penalty for the entire period would be reported on Form 5329 with your 2017 return and include an explanatory statement breaking down the penalty for each year. Do not pay any late interest, the IRS will bill you for that if they care to. You do not have to amend any prior year return.
While complicated, if you paid very high unreimbursed medical expenses in certain of these years, you may be able to offset the penalty for busting the SEPP with a high medical expenses exception. That would require an amended return.2017-06-22 19:16, By: Alan S, IP: [220.127.116.11]
L3: 72t terminationAlso, if you had high medical expenses, these might have qualified for form 5329 exception code 05, rather than code 02 for the SEPP in 2014, 2015, and possibly 2016 before you reached age 59 1/2. You would already have paid income taxes on those distributions, so if you qualify, it would just substitute one exception for another, and you might avoid the 10% penalty on those distributions.
If this does not apply, I would re-consider your thoughts about terminating the SEPP. You have only 22 months more under the plan, vs. the 10% penalty on the 30 months that you had taken distributions before reaching 59 1/2. (No penalty on distributions since reaching 59 1/2.)
Even if one of you has a short mortality life, the survivor will have a life expectancy to age 85 under normal circumstances. Also, consider the long term aspects for any beneficiaries, and PLANNING DURING RETIREMENT.2017-06-23 17:57, By: dlzallestaxes, IP: [18.104.22.168]
L3: 72t terminationThanks for the reply. Certainly not what we had planned on doing and do understand penalty aspect of termination. Just feels like the right thing to do at this point in time.2017-07-03 16:19, By: Unsure1411, IP: [22.214.171.124]