borrow from 72t
L1: borrow from 72tsimple question, i have my 72t paying me now and it is great. can i borrow out of my account and it now effect the payment(as long as i pay it back) and what would it do to the total asset balance. ty2008-05-05 19:15, By: jaxmaxlife, IP: [22.214.171.124]
L2: borrow from 72tBorrowing from your own IRA is a “prohibited transaction”. A SEPP 72-T is a “subset” of a traditional IRA, and is bound by its rules.
Therefore, the amount you “borrow” becomes taxable income, and you have now “busted” your SEPP 72-T, and become subject to the horrific 10% penalty retroactively on your CUMULATIVE distributions.
DO NOT DO IT !!!!2008-05-05 19:35, By: dlzallestaxes, IP: [126.96.36.199]
L2: borrow from 72tYour IRA cannot formally loan you money. But you CAN take a distribution from your IRA and roll the funds back within 60 days. You would report that as a rollover on Form 1040.
With the 72t plan the gross distribution must equal the correct amount as required by your 72t calculations after the reported rollover. For example, suppose you take your full annual payment in July, but in November you temporarily need another $5,000. You can withdraw the 5,000 as long as you roll the funds back within 60 days and report it as such on your Form 1040.
However, this is risky business because you are only allowed one rollover per any 12 month rolling period. Once you use it, it is not available again for 12 months and you have lost a valuable safety valve to correct an error if you have taken out too much and need to roll back into the account. If that were to happen, your IRA custodian is supposed to report it as a regular contribution and NOT a rollover on Form 5498, which would automatically bust your plan. That”s why taking temporary use of the funds is ill advised and show be used only in a desperate situation.
A 72t distribution is not eligible for rollover, but as long as you and your IRA custodian report the correct amount distributed that is NOT rolled over, there is no violation. What you cannot do is to roll over funds that are required to remain distributed in order to meet your annual distribution requirement. If you take out more than your annual requirement, the extra amount is NOT a 72t distribution and can be rolled back, but only if you remain eligible to complete that rollover. 2008-05-05 20:10, By: Alan S., IP: [188.8.131.52]
L2: borrow from 72tHello jaxmaxlife:
The comments already made are correct and appropriate. However, we all get occassinally trapped in our thinking in that most of us think about SEPP plans in conjunction with IRAs. You may alos launch a SEPP plan against other types of qualified plan accounts such as 401(k)”s, 403(b)”s, 401(a)”s, etc. Any of these accounts might permit a borrowing transaction whereas 408(a)”s; e.g. IRAs do not.
As such, a borrowing transaction from a deferred account would be separate from and would not influence the cash distribution stream which is the SEPP plan. Instead, when a loan occurs, the plan account exchanges cash (usually with a max. of $50,000) for your promissory note which you must pay back regularly with interest; then the promissory note held by the account is just another performing asset in the account.
However, all this said, this is dangerous territory. Say you are able borrow and launch a SEPP plan. A year or two into the process you forget or intentionally default the repayment of the note. This causes a “deemed distribution” in the amount of the unpaid principal on the note; which, when added to the SEPP distributions would become a modification to the SEPP plan thus invoking the 10% surtax; i.e. very bad news.
TheBadgerwjstecker@wispertel.net2008-05-06 07:13, By: TheBadger, IP: [184.108.40.206]