busting your 72t

L1: busting your 72tMy question:
What is the penalty for “busting” your 72t distribution? Three years into distributions, my 401K has done reasonably well and if the distribution were recalculated with current age, 401K balance, etc, the distribution value would be up by approx 1/3 – money I could surely use. I understand that you are allowed one change to the mimmum distribution, but that would be far short of my cash requirements. I am still under 59 1/2 and plan to continue to take distributions for life. If there is a penalty, where do I find information to calculate it?
Thanks.2007-05-30 13:25, By: ttttttt, IP: [66.194.217.223]

L2: busting your 72tYou really don”t want to know. The penalty is 10% of the CUMULATIVE DISTRIBUTIONS under the SEPP 72-T plan FROM INCEPTION, even if you bust it the day before the later of 5 years or age 59 1/2.
That”s why we always recommend that taxpayers not use all of their 401-k or IRA to “fund” the SEPP 72-T, but rather keep a separate amount for emergencies, or to supplement the SEPP distributions. In that way they only pay the penalty on those supplemental amounts, but not cumulatively on the main distribution.2007-05-30 21:12, By: dlzallestaxes, IP: [151.197.39.64]

L2: busting your 72tEven worse, the IRS can and probably will assess interest on the 10% penalty for each year of the deferral period, eg. after a 4 year bust you would owe 4 years of interest on the first year”s 10%, 3 on the second year”s etc. I don”t know if the IRS would break down each quarterly interest rate change, but it would be a calculation with an unwelcome result, to be sure.2007-05-31 10:18, By: Alan S., IP: [24.116.66.98]