busting my account

L1: busting my accountI have been taking SEPP for 20 months. I am going to bust the account and withdrawal a lump-sum. Once I do this, can I do another calculation and begin taking another SEPP? Thank you for your help.2006-09-26 12:06, By: CLB, IP: [71.49.113.243]
L2: busting my accountYes.2006-09-26 13:22, By: Jim, IP: [70.184.2.72]

L2: busting my accountI would suggest taking just enough to tide you over to the end of the year. Then start the successor SEPP program in 2007 instead of late 2006. Obviously, you probably do not have another source of income (eg a short term loan) to avoid busting the 2 year program or enough assets to keep an IRA outside your next SEPP program.2006-09-26 22:12, By: Alan S., IP: [24.116.68.91]

L2: busting my accountWhy would you suggest starting the new SEPP next year?2006-09-27 09:03, By: CLB, IP: [71.49.113.243]

L2: busting my accountOne thing I didn”t mention from my busting the 72t account is that the lump sum is going to be used for medical expenses. I don”t think I should have to pay the 10% penalty on the withdrawal, but does this mean that I won”t actually be busting my account and can recalculate my monthly withdrawalbased on my new balance after the withdrawal. thanks for the help.2006-09-27 13:12, By: CLB, IP: [71.49.113.243]

L2: busting my accountCLB:
Your medical expenses may be an exception to the 10% penalty if withdrawn from an IRA that is not part of your SEPP plan. Check with your tax professional to determine if your medical expenses will qualify as not all do. But at this time, only death and disability are exceptions for additional withdrawals from a SEPP Plan. So if you are going to bust the plan, do that first and then work on the other aspects for your lump sum withdrawal.
Get good advise from your tax professional before going forward with your plan.
Jim2006-09-27 13:38, By: Jim, IP: [70.184.2.72]

L2: busting my accountJim is referring to the blatant inconsistency between Pub 590 and the tax code. The code says that only death and disability excuse the retroactive penalty, whereas Pub 590 says the 10% tax also does not apply if any of the various exceptions occurs. Unfortunately, the code trumps the publication.
Assuming only one IRA account here and no other source of funds, it would be best to bust the SEPP this year with as small a distributions as possible. Then early next year, partition the IRA into two accounts, one to be the source of the Medical payments, the other to start a new SEPP thereafter. You can claim the medical exception on Form 5329for the medical distribution. When you start the new SEPP, perhaps the custodian will provide the “2” code, but if not you must also claim the SEPP exception on the same 5329. That will leave you with only a small penalty for this year plus the penalty and interest from 2005. You may also have a medical itemized deduction for 2007 to offset some of the ordinary taxes. I understand this all becomes more difficult if you don”t know that the medical costs are going to be.
2006-09-27 22:46, By: Alan S., IP: [24.116.68.91]

L2: busting my accountIs there a reason that you suggest I take out only a small amount this year from my IRA? My understanding is that once you bust the SEPP, you have to pay all back taxes anyway. SInce I have to pay for all medical expenses this year, if I take out a lump sum I will have to pay taxes and penalties(maybe not penaltiesb/c of medical expenses) based on how much I take out. I guess my question is, does how much I take out this year from my IRA have any bearing on the situation other than the fact that I would have to pay taxes and maybe a penalty for my ”06 return as opposed to my ”07 return. Thank you for your help!2006-09-28 07:36, By: CLB, IP: [71.49.113.243]

L2: busting my accountAlan can correct me if I”m wrong, but I think his idea is to help keep the records straight to, hopefully, avoid triggering an IRS inquiry. However, you do not have to wait to initiate your actions and it can all be done within the same calendar year. But I will suggest doing the following actions in this order:
1. Check with your tax advisor / CPA / tax attorney to determine if you can take the lump-sum distribution from your IRAwithout penalty topayyour particularmedical costs. I”m not current on the rules for penalty-free withdrawals for medical reasons, but I do know that all do not qualify. If your”s won”t qualify, then you may be jumping through some hoops that you don”t need to worry about. In other words, if your are going to pay full penalties anyway, and you have to use the SEPP IRAfunds to pay the medical bills, then pull the money,bust the plan now, and get ready to start a new SEPP Plan.
2. If your medical costs will be excepted from the 10% penalty, then bust your plan by making a transfer of the entire account to a new IRA with a different account number, even with the same custodian. Now you can withdraw funds under your medical exception.
3. Start a new SEPP Plan using this new IRA account set up in # 2 above after the withdrawal for medical reasons. If you want to put another layer of separation into the process, you could make another transfer from the # 2 IRA to # 3 IRA, and then start the SEPP Plan.
You”re going to wind up with a fist-full of Form 1099-R”s for the year, and your will probablyhave to file Form 5329 to claim any exceptions or explain penalties, so just keep absolutely fantastic documentation.
Jim2006-09-28 10:05, By: Jim, IP: [70.184.2.72]

L2: busting my accountthank you. For clarity, let me make sure I got it. If my medical expenses qualify for avoiding the 10% penalty, I will still be busting my SEPP. So therefore everything that I have taken out in the past will incur the 10% penalty? In the end I will have to pay the 10% retroactively on what I have taken out plus ordinary income taxes on the withdrawal for the medical expenses(As long as my medical expenses are exempt from the 10% penalty)
thanks again.2006-09-28 11:28, By: CLB, IP: [71.49.113.243]

L2: busting my accountYou are correct in suggesting that taxpayers discuss these ideas with EXPERIENCED tax advisors. You have all missed a major flaw in the plan in this situation—– WITHDRAWALS FOR MEDICAL EXPENSES QUALIFY FOR THIS EXEMPTION ONLY TO THE EXTENT THAT THEY EXCEED THE 7.5% OF AGI THRESHHOLD.
Therefore, if you have $ 50,000 of gross income, and take an additional $ 50,000 from your SEPP 72-T, you would not get a deduction for the first $ 7,500 on your take return AND you would also be require to pay the 10% penalty on this first 7.5% ( $ 7,500).
By the way, there is another exclusion for health insurance premiums paid by certain unemployed taxpayers.
Do extensive planning and research before you proceed further.2006-09-29 00:59, By: dlztaxes, IP: [4.175.9.206]