Busted 72t Questions
L1: Busted 72t QuestionsI recently had some unforeseen financial issues that required me to bust my SEPP, of which I was in year 3 (starting date 2/2015). I will be turning 59 1/2 in a few months (DOB 2/7/1958), but under the timeline of my SEPP I would have been required to not make additional withdrawals for a full five years (2/2020). My questions are – now that my SEPP is busted, will I still assessed penalties for any withdrawls for the full five years of my SEPP or will I now be eligible to make withdraws penalty free once I reach age 59 1/2? Also, what is the best way to report to this to the IRS?2017-03-14 12:47, By: Taylormanjaro, IP: [18.104.22.168]
L2: Busted 72t Questions1. Under your SEPP 72-T you were required to take withdrawals under your plan for the LONGER of 5 years or age 59 1/2. Therefore, you were required to take them for 5 years until 2/2020 age 61 1/2 since you started 2/2015. ( I think that you inadvertently said “not” in your posting.
2. Having busted your SEPP 72-T plan, you will not be subject to the 10% penalty for early distributions on those that you take after reaching 59 1/2 in August 2017.2017-03-14 14:46, By: dlzallestaxes, IP: [22.214.171.124]
L3: Busted 72t QuestionsThanksdlzallestaxes. You are correct on the inadvertent “not” in my post, and I appreciate your responding.2017-03-14 15:53, By: Taylormanjaro, IP: [126.96.36.199]
L4: Busted 72t QuestionsYou might also find that you qualify for a different penalty exception even though the SEPP exception will no longer apply. For example, if the additional distributions were due to high medical expenses, you could file a 5329 and claim that exception or any other exception that might apply. That would reduce your retroactive penalty for busting the SEPP.
To report a busted SEPP, simply do not file a 5329 to claim the exception and pay the total retroactive penalty due (less the penalty waived by a different exception you might qualify for. If your SEPP had not been busted by 12/31/2016, file your 5329 for 2016 to claim the exception instead of paying any penalty on your 2016 return. The retroactive penalty and interest for all prior SEPP distributions taken in 2015-2017 will be reported on your 2017 return, so you mayneed to increase your withholding or pay quarterly estimates for 2017 to avoid an underpayment penalty for 2017 taxes due. At least you need to pay in 100% of your 2016 tax liability (unless your AGI is high) to meet a safe harbor against underpayment penalties.2017-03-14 16:47, By: Alan S, IP: [188.8.131.52]
L5: Busted 72t QuestionsThanks for responding Alan S. That’s very helpful.2017-03-15 13:43, By: taylormanjaro, IP: [184.108.40.206]