“Busted” 72t Plan?
L1: “Busted” 72t Plan?I have been taking 72t distributions for the past 5 years. The fifth anniversary (i.e. last required distribution) was September 1, 2009. Now, thanks to your site, I realize that I was required to wait until November 1 before taking any “regular” distributions. However, in mid-September I wrote some checks out of my IRA. My question is: Does this this mean I ‘busted’ my 72t plan and will therefore liable for the 10% penalty on 5 years of distributions? If so, is there any remedy for this? Is the IRS ever known to waive the penalty under these circumstances?2010-04-06 18:59, By: Boston IRA, IP: [220.127.116.11]
L2: “Busted” 72t Plan?More details please….
What is your date of birth?What was the date of the 1st distribution?What was the annual distribution amount?What was the total amount distributed between the start and 09/01/09?
2010-04-06 19:24, By: Gfw, IP: [18.104.22.168]
L3: “Busted” 72t Plan?Date of birth: 8/16/1949
1st distribution: November 1, 2004
Annual distribution amount: $37,056 ($3,088 monthly)
What was the total amount distributed between the start and 10/01/09 (Corrected date) $185,280
In mid Oct I wrote a few checks against the account,totalling a about $850 less than the monthly distribution amount.
2010-04-06 20:03, By: Boston IRA, IP: [22.214.171.124]
L2: “Busted” 72t Plan?It does not sound good, as you do not mention any particularly compelling extenuating circumstances for requesting relief. A busted plan incurs a penalty on all distributions taken prior to age 59.5 back to the first plan distribution, and interest charges also apply to late paid penalties.But first, let’s be sure that you busted the plan by confirming the exact modification date. What was the date of your first plan distribution in 2004? What date did you turn 59.5?2010-04-06 19:31, By: Alan S., IP: [126.96.36.199]
L3: “Busted” 72t Plan?I turned 59 1/2 on April 15, 2009. First dist was October 1, 2004.
In my mind, there were lots of extenuating circumstances, but of course these will mean nothing to anyone else. Failure of my business causes me to now plan Ch 13 filing. Sadly, assuming Nov 1 was the 1st modification date, I could have easily waited until Nov 1 to take any additional distributions to meet my needs, but I jumped the gun, I guess.2010-04-06 20:09, By: Boston IRA, IP: [188.8.131.52]
L4: “Busted” 72t Plan?In your response to my reply, you stated the 1st distribution date as 11/1/2004 and in response to Alan’s reply you stated 10/1/2004.
If 10/1/2004, you have no problems as the 1st modification date was 10/01/2009 and your checks were after that date.
If 11/1/2009, then you exceeded the planned annual distribution while the plan was still alive and you effectively busted the plan. You turned 59.5 on 02/16/2009 so any distributions made after that date, even if the plan was busted, would not be subject to the 10% penalty.2010-04-06 20:17, By: Gfw, IP: [184.108.40.206]
L5: “Busted” 72t Plan?Sorry for my confusion. November 1, 2004 was the 1st distribution date. In your opinion, is there any chance that if I were to put the ‘extra’ distribution back into the account that I could avoid the penalty? Thanks.2010-04-06 20:24, By: Boston IRA, IP: [220.127.116.11]
L6: “Busted” 72t Plan?In my opinion no, but you may get other opinions and/or options.
The information that you posted is very similar to Arnold v. Comm., 111 TC No. 12 (1998) – he also took out additional amounts before the end of the 5-year period.
From our FAQ…
Q. Assuming the 5-Year rule, when can payments be modified? A. In 1998, a tax court held that a payment received by a taxpayer after he received five equal annual installments and after he reached age 59-1/2 was a modification of the Substantially Equal Periodic Payments. The Court held that the modification occurred within the 5-year period beginning with the first payment, thus triggering the recapture of the 10-percent penalty tax. The Service argued that the 5-year period began with the first distribution and ran until the end of the 5th year. The tax court agreed – the 5-year period closes at the end of the 5 years beginning with the first distribution, and does not end on the date of the 5th annual distribution. Arnold v. Comm., 111 TC No. 12 (1998).
2010-04-06 20:55, By: Gfw, IP: [18.104.22.168]