Broken 72T? Is a penalty due in this situation?
L1: Broken 72T? Is a penalty due in this situation? Broken 72t for 2011?
My brokerage firm set up a 72t distribution for me about 4 years ago. I’m currently58.I’ve been getting$1,000 a month under 72t direct deposited to my checking account toward the end of each month (and I’ve now read on this forum why end of month distribtutions can be a problem).In Nov. 2011, my broker called to advise that he was switching investment firms and advised as to how he would movemy accountsfrom the old to the new firm (since I decided to stay with him). He also said that my 72t account would be left alone at the old firm until my final distribution for 2011 (specifically so as not to disrupt the 72 distribution). That of course, got screwed up. Rather than the old firm direct depositing the 72t to my checking account, they transferred the amount tomy new account set up at mybroker’s new firm instead. My distribution didn’t go out (from the new firm)until 01-04-12. My 1099 R for 2011(from the old brokerage firm) is showing a distribution of $11,000.00 (rather than the $12,000.00 of previous years). My CPA says that I owe penalites of $11,000 — which from reading other postings on this site, doesn’t look like a correct calculation. The CPA says the penalty is only for the current year – this site leads me to believe if apenalty is due, itextends back over the 4 years I’ve been taking distributions. My broker is saying that I don’t owe any penalty since I didn’t “break” my 72t myself and the distribution problem was through no fault of my own. I don’t see anywhere on the tax filing paperwork to explain this situation to the IRS. The IRS will only see a 1099 that’s short a thousand bucks– can someone please advise. Do I owe a penalty? If not, how do I file my taxes to clarify that this was a brokerage firm screwup? Although I’ll be 59-1/2 and 5 years into my 72t in nov. 2012, will I have more penalties for getting 13 distributions in 2012 instead of 12.
Thanks in advance for your replies.2012-03-19 20:39, By: Smythe, IP: [220.127.116.11]
L2: Broken 72T? Is a penalty due in this situation? I would immediately put the former brokerage firm on notice, IN WRITING, that you are holding them responsoble for all penalties, interest, and taxpractitioner fees to rectify the problem.
Then ask them if they want their tax compliance department to handle starightening out the problem with the IRS. In the past couple nof years the IRS has been very sympathetic in situations like this, and will usually allow the correction without invoking any penalty.
I would report the correct figure of $ 12,000 for 2011. While this will exceed the 1099-R, I have never seen IRS object to taxpayers declaring and paying taxes on more income than was reported to them.
For 2012, you do no have to take a Dec 2012 distribution because you will be over 59 1/2. So, I would not take a Dec 2012 distribution. Then you will have only $ 12,000 distributed in 2012, not $13,000.
Of course, 2012 will then include $ 1,000 that will be taxed in 2011 and 2012. You will have to decide if it is worth the exposure by reporting only $ 11,000 of the $ 12,000 as 2012 taxable distributions. Again, IRS rarely looks at the reporting of less than the full IRA distributions because frequently there is a difference.
Further, IRS never keeps track with SEPP 72-T plans and Required Distributions.
Lastly, almost no one at IRS understands SEPP 72-T plans.2012-03-19 23:58, By: dlzallestaxes, IP: [18.104.22.168]