Busted 72T

You are here:
< Back

L1: Busted 72T
Born March 1961
Started a 72T with xx$ mid year 2004. Life Insurance Annuity.Opened another annuity the next year 2005 with more rollover money. (Same Custodian )I ended both plans Oct. 2011. Checks were sent to me from custodian withthe plan to open another type of
annuity ( same custodian ). However I opted to move bothchecks within 60 days into my bank and open to simple interest IRA account.
One check a year was coming to me and one check was going to Custodian for thecost of life insurance. I paid taxes on both the amounts each year.Looking for alternative options, to possibly move the money and avoid the 10% penalty andinterest. I have
already consulted my tax preparer and probably will be a wash on myproposed returns , +/- 1K. which i had accepted and looked to pay. Now I amhaveing2nd thoughtsany ideas would be appreciated. However I do not want to return to that custodian as anoption.

2012-01-07 15:56, By: cajunslo, IP: [146.130.68.41]

L2: Busted 72T
There is no way to tell whether you busted your 72t plans or not.
Were calculations properly done to determine how much you needed to distribute in 2004 and also for the possible second 72t plan in 2005? And were your distributions not counting the 60 day rollover equal to the required
amounts?
Note that you are only allowed one rollover per IRA account within a 12 month period, including the IRA that received the rollover. You used those rollovers in October. Therefore, the only way you can move funds from the
bank to another custodian is by direct transfer until Oct, 2012.
If you did bust your plan or never had a valid plan, you would owe the 10% penalty plus interest back to 2004. Has the IRS inquired about your plan(s)? We need these additional facts to determine your best options from here.
2012-01-07 17:29, By: Alan S., IP: [24.116.66.40]

L3: Busted 72T
The IRS has not inquired about my 72T.
I assume the custodian figured the withdrawl amounts correctly.
Anually around $2700 was taken from one account by custodian for the life insurance.
Anually another $2300 was taken from another account which came to me.
These amounts are ballpark. My CPA went back on my previous 5 yr. returns and added
up the 1099 amounts from both accounts and estimated penalties of 10% and another 4%
in past penalties. Which is around $3800.

2012-01-07 18:54, By: cajunslo, IP: [146.130.125.85]

L4: Busted 72T
Sounds like your CPA feels that you busted the plan, probably because the annual amounts were not calculated correctly. But you should be sure before you report the plan as busted on your 2011 tax return. Any penalty would be
owed using Form 5329 for the year the plan is busted.
Did you file a 5329 each prior year claiming the exception, and what code did the insurance company use on their 1099R in Box 7?
2012-01-07 19:49, By: Alan S., IP: [24.116.66.40]

L5: Busted 72T
I contacted my CPA after reading discussion boards trying to determine what my penalties would be. I kind of panicked when I found out there were penalties on top of the 10% which I had accepted already.
I know I busted the plan. I started having 2nd thoughts about possible options moving the
the money again and hopefully avoiding some of the taxes. After reading more in these discussions, I don’t think I would qualify for any other exemptions other than the 72T I was already in and opted to bust.
I really did not do enough homework before just busting the plan, I was looking into
self-directed IRA’s and canceled/busted the Life Insurance and took thechecks and opened another
IRA at my bank.
The 1099 forms were I believe a 2. for exempt. Don’t know that a 5329 was ever filed i would have to get back with my CPA. Thanks for the response
2012-01-07 20:49, By: cajunslo, IP: [146.130.72.174]

L6: Busted 72T
If you indeed received a code of 2 on past 1099R forms, the custodian felt that you met an exception, including a 72t plan exception. While your annual distributions have been low, perhaps your balances were also low and this
was a way a life insurance salesman was able to sell you a life policy using your IRA money and taking an equal amount out each year to avoid the penalty.
Just moving the funds to another custodian in a rollover does not bust your plan, unless you took out a different amount in 2011 that you did not roll over. While we cannot tell if your plan was valid, I would not offhand just
assume it has been busted and pay a penalty if you can avoid it.
That said, since you have another 9 years or so before reaching 59.5, IF your plan is valid so far but you know that you do not want to continue it for another 9 years, you can file your 2011 return and report a voluntarily busted
plan, pay the 10% penalty for all the amounts taken out since 2004, and wait for the IRS to bill you the interest.
If you provide the details requested by dlz we can determine if your plan was valid or not and what you need to do if you want to continue the plan from here.

2012-01-07 21:25, By: Alan S., IP: [24.116.66.40]

L5: Busted 72T
If you want valid information from us, please give us all of the facts :

Date of Birth
Original Balance of IRA for 1st SEPP 72-T plan
Exact date and amount of First Distribution in 2004 from 1st SEPP
Total Distributions in 2004from 1st SEPP
Total Distributions each year 2005, 2006, 2007, 2008, 2009, 2010 for 1st SEPP
Exact date and amount of First Distribution in 2005 from 2nd SEPP
Total Distributions in 2005 from 2nd SEPP
Total Distributions each year 2006, 2007, 2008, 2009, 2010 for2nd SEPP

Only then can we confirm your CPAs thought that you busted your plan(s(), and when.
Your custodian has no responsibility for calculating the correct annual distributions from a SEPP. That is YOUR RESPONSIBILITY. If he did it wrong, it’s your 10% IRS penalty and interest, retroactively on all cumulative distributions.
I doubt if I would have recommended to a client to set up a SEPP 72-T plan totake such small annual distributions, and lock up these accounts for 5 or more years.
2012-01-07 21:06, By: dlzallestaxes, IP: [96.227.217.194]

L6: Busted 72T
Sorry again for not giving specific amounts. I will have to go back on my returns and check
for the exact amounts. I will also try and get more info from my custodian. then I will post back. It will take me a few days to get it together. Again thanks for the responses.
Also, I do believe thats exactly what happened. The life insurance agent used a transferred
IRA to fund payment for a Policy. Just not sure what method he used to calculate. I do know that
the amount I recieved and the amount that was going towards the policy was not the same.
Again I will try and get better info.

2012-01-07 21:57, By: cajunslo, IP: [146.130.72.174]

L7: Busted 72T
FYI — Annuity calculations and amounts are not necessarily equal to SEPP 72-T requirements. The annuity makes its payments based upon its provisions.
This is often not understood by taxpayers, brokers, financial advisors, etc.
2012-01-07 23:04, By: dlzalllestaxes, IP: [96.227.217.194]

L6: Busted 72T
Date of Birth – 3-9-1961
Original Balance of IRA for 1st SEPP 72-T plan – ONcore Xtra Qualified IRA
Opened 8/25/2004. Purchase Payment – $29952.16
Exact date and amount of First Distribution in 2004 from 1st SEPP
$ 2132.22 Is the amount I recieved each year in July, Total Withdrawls as 6/30/11 $ 14,925.16
Total Distributions in 2004from 1st SEPP- Not sure if they began in 2004 or 2005, will check.
Total Distributions each year 2005, 2006, 2007, 2008, 2009, 2010 for 1st SEPP
Total Withdrawls as 6/30/11 $ 14,925.16
Exact date and amount of First Distribution in 2005 from 2nd SEPP – ONcore Xtra Qualified IRA

Opened 9/6/2005 – Purchase Payment 46,467.87, will check on date of first distribution and
amount.

Total Distributions in 2005 from 2nd SEPP
Total Distributions each year 2006, 2007, 2008, 2009, 2010 for2nd SEPP
Total Withdrawls as 6/30/11 $17,530.32
2012-01-08 11:57, By: cajunslo, IP: [146.130.80.39]