Account close to depletion can I change distribution
L1: Account close to depletion can I change distributionMy Metlife advisors divided mytotal retirement amount into 3 individual equal accounts and set them up as SEPP Plans that began 7/1/2010. I was 45 yrs old.Each plan paid $224 per month.
My tax accountant did not know that this was an actual retirement account and I paid the 10% penalty on my withdrawals from 2001 – 2006.In 2002I withdrew $6200 from each account, as I was struggling financially. I also paid 10% penalty on this.
In 2006, my tax accountant subsequently filed an amendment to recognize my withdrawals as 72T withdrawals back to 2004. These withdrawals are subject to 10% tax, but no 10% penalty.
Now each account has less than $1100 in them. This means that with the current distribution amount it will run out in approx 3 months.
My question is can I apply the rule Rev. Rul. 2002-62 to reduce my distribution and hopefull it will last 4 more years (I cannot reduce it to less than $50 per month)? Or if it runs out, will it fall under asset depletion section.
Linmarie2010-11-30 20:29, By: Linmarie, IP: [22.214.171.124]
L2: Account close to depletion can I change distributionYou have several different things going on here. First, I think you have a typo and that your plan started 7/1/2001, not 2010. In answer to your last question, there is no requirement that you cannot deplete a SEPP 72-T account prematurely if it runs out of money if you continue the same withdrawal rate. In any eveny, if you need the money, then take it now and let it run out. I see no value in changing it to a lesser amount that you need, just to avoid depleting it early. You apparently have on-going financial problems and needs, so don’t get hung up on depleting the account.
1. You original 3 plans were each $ 224/month = $ 1,344/account in 2001 for the 6 months.
2. In 2002 you withdrew $ 6,200 from each account. Since your annual limit was $ 2,688 ( $ 244 x 12), you busted all 3 of your plans. Therefore, for 2002 you owed not only the taxes (10% you said was your bracket, the lowest one available), but also the 10% penalty on all of the 2002 withdrawals, plus the 10% penalty on all of the 2001 distributions.
3. After you exceeded the annual limit of $ 2,688 in each account in 2002, your SEPP plan was busted, and therefore technically no longer existed.
4. Apparently your tax accountant ( with limited or no knowledge of SEPP 72-T requirements), in 2006 “amended my tax returns back to 2004” to recognize your “new” SEPP 72-T plans. In 2006, if he was taking that approach, he could have amended 2002, 2003, 2004, and 2005. ( The statute of limitations for amending tax returns is 3 years after the due date or date filed, whichever is later. The 2002 tax return would have been filed 4/15/2003 or if extended 8/15/2003, or even 10/15/2003. So it depends when you filed the original tax returns, and when he filerd the am3ended tax returns.)
5. Because of all of the errors in his processing of the tax returns, he should not have charged you to prepare the amended tax returns.
6. Somehow the IRS apparently overlooked teh 10% penalty for 2001 distributions.
7. Apparently the IRS allowed you to start a new SEPOP 72-T in 2002 after busting the original plans, and did not check your documentation ( which probably did not exist) for starting the new plans in 2002 after busting the original ones.
8. I hope that you replaced that tax accountant with someone who knows what they are doing.
9. Hopefully he had professional liability insurance coverage, and that you made him pay for all of his mistakes that c ost you the poenalties, etc., and lack of guiding you properly, unless you did all of this without his knowledge or advice.2010-11-30 22:10, By: dlzallestaxes, IP: [126.96.36.199]
L3: Account close to depletion can I change distributionThanks so very much for the reply!
You’re right I did mean the distributions started in 2001.
I actually did pay the 10% penalty from 2001 to when my tax accountant amended the returns back to 2004, as 72T distributions, because my tax person filed the income as early distributions, not realizing I had actually retired (it was an early retirement where you were given 5 yrs on your age and service to equal the needed 75 forretirement.
You’re also correct that the documentation on how the SEPP was set up through Metlife, no longer existed. I tried to get that information from them for my tax accountant, but they said it was no longer available as the person I originally had as myaccount rep was no longer with the company. Believe me I called over and over trying to get the information.
I might be off on the year it was, when my tax person went back to 2004 to amend the returns. I do recall her saying she could go back 3 years.
The amount of the monthly distributions has never changed from the $226 (net $204) each month (I was off $2 in my earlier $224).
Based on your info, I will let this run out, as it not worth reducing the distribution.
Again, I can’t thank you enough for this advice.
2010-11-30 23:54, By: linmarie, IP: [188.8.131.52]
L4: Account close to depletion can I change distributionEven though it is too late for you, hopefully others will benefit from the following advice that is repeatedly stated on this list-serve :
ITIS THE TAXPAYER’S RESPONSIBILITY TO DOCUMENT THE SEPP 72-T PLAN, AND TO KEEP A COPY FOR 7 YEARS AFTER THE PLAN ENDS.
IT IS A GOOD PRACTICE TO SUBMIT ALL OF THE DOCUMENTATION WITH THE INITIAL TAX RETURN FOR THE YEAR THE PLAN STARTS.
IT IS A GOOD PRACTICE, AND MAY BE REQUIRED BY MOST FINANCIAL INSTITUTIONS, THAT YOU SUBMIT A COPY OF YOUR DOCUMENTATION TO THEM TO SUPPORT YOUR SETTING UP THE SEPP 72-T PLAN. BUT AS YOU FOUND OUT, WHEN YOU NEED IT THEY MAY NO LONGER BE ABLE TO PROVIDE IT.
SIMILARLY, I ALWAYS RECOMMEND THAT MY CLIENTS MAKE A COPY OF ALL BENEFICIARY DESIGNATION FORMS FOR ALL RETIREMENT PLANS, ANNUTIES,AND LIFE INSURANCE POLICIES. ALSO, EVERY 2 YEARS REQUEST, IN WRITING, THAT THE COMPANY RESPOND, IN WRITING, TO YOU WHO THE PRIMARY AND SECONDARY BENEFICIARIES ARE ACCORDING TO THEIR RECORDS. ( I SUGGEST ASKING THEM TO SUPPLY THE INFORMATION, SO THAT THEY HAVE TO LOOK FOR THE SUPPORTING DOCUMENTS, RATHER THAN ASKING THEM TO CONFIRM WHAT YOU TELL THEM IS IN YOUR RECORDS, BECAUSE THEY ARE USUALLY LAZY AND WILL JUST AGREE THAT IS WHAT’S IN THEIR RECORDS.
2010-12-01 03:50, By: dlzallestaxes, IP: [184.108.40.206]