L1: Busting 72THello, I have heard that it is possible to “bust?” the 72T if the IRA balance goes to zero. I need to use DW IRA to 72T, but she is only 47 (12 years of ammortization withdraws.) Is there a way to add money, or change distribution later on to avoid penalty? 2008-09-03 13:49, By: jimbo, IP: [220.127.116.11]
L2: Busting 72TThe term “bust” means you have modified the plan prematurely and become subject to the penalty.
If the account declines to -0- due to bad investments, the SEPP is not busted since this is an allowed modification. No penalty is incurred and the plan simply ends.
With respect to your spouse”s IRA, once the SEPP plan begins, no funds can be added to the account. It can only grow due to performance of the investments in the account and those investments can be changed, but no new funds can be added. However, if the full amount of the distribution is not needed, there is a one time switch to the RMD method that can be elected. This can substantially reduce the annual amount of the SEPP distribution and preserve funds in the IRA. Once this is elected, the RMD method must be used until the plan can be modified, in her case at 59.5.2008-09-03 14:00, By: Alan S., IP: [18.104.22.168]
L2: Busting 72THello, Jimbo:
Yes, I believe that there was a time when depleting a SEPP account prior to the longer of age 59.5 / 5 years was considered a bust and the IRS could assess penalties on such account holders. I”m not sure when that was changed (2002?) but this is no longer the case. Apparently, this was considered too draconian for even the US government to countenance. The general feeling was that anyone with a depleted SEPP probably had more problems than they could handle and the government “piling on” at that time was just not acceptable.Alan… did the IRS ever impose penalties of this type on prematurely depleted SEPPs or was that possible by law but not done in fact?Once a SEPP has started, no new money can be added to it and no money, other than the calculated SEPP distribution,can be removed from it without busting the SEPP. Neither account fees nor increases / decreases in the account value due to market conditions will bust the SEPP. You may buy and sell mutual funds within the account without busting the SEPP.Ed2008-09-03 22:40, By: Ed_B, IP: [22.214.171.124]