Changing payout date on 72t
L1: Changing payout date on 72tI set up a 72t in May 2008 on my IRA through Fidelity. I took a full year distribution in May 2008 and a full year distribution in May 2009. I wanted to change only the distribution date to February starting in 2010 and thereafter until the end of the 72t and signed a paper to do this. Fidelity set up a new account and said they had to because they could not make a change to the current 72t. From what I know about 72t rules I should be able to change the payment timing within the 72t as long as the amount does not change. Is this true. If Fidelity has changed the plan from plan 500 to plan 501 and the amount has not changed but the plan number has changed will that bust the 72t.2009-10-02 13:47, By: jg, IP: [18.104.22.168]
L2: Changing payout date on 72tI know of no reason why Fidelity would have to set up a separate account when all you are doing is changing the distribution date. This must be a systems requirement unique to Fidelity. Perhaps you can get a detailed explanation from a specialist there why this is necessary, and what these plan #s relate to.
If they just do a same trustee transfer to a new IRA account, it should not cause any problem with the 72t plan compliance. If you are taking just one distribution a year, then you will only have one 1099R, and that keeps reporting simple.
Of course, the earlier in the year you take out your entire annual distribution, the more budgeting pressure you incur, and if you eventually move this back to January, then you will not be able to accelerate your cash flow any more. Perhaps you are doing this partly due to the April due date for income taxes.
2009-10-02 17:25, By: Alan S., IP: [22.214.171.124]
L3: Changing payout date on 72tThanks for your reply. I intend to talk to as many people as it takes at Fidelity to get a clear explaination regarding this plan change. The confirmation letter I recieved from Fidelitymakes it sound like I am establising a new withdrawl plan in 2010. Thanks for the concern on budgeting pressure, but I’m not that tight budgeting wise, I use some of the money from the 72t to pay my property taxes that are due in February.2009-10-04 12:53, By: jg, IP: [126.96.36.199]
L2: Changing payout date on 72tI get annoyed by companies who have incompetent management, incompetent programmers, and incompetent employees.
I would write to the president of Fidelity, or any company, explain what was told to you, and ask for them to confirm if your understanding is correct, and if they will fix their system, rather than losing you and everyone you know as their customers.
As a CPA I get immediate response, and they will usually correct their programming and training. I also put them on notice that we will hold them responsible for all taxes, interest, and penalties that might be imposed because of deficiencies in their systems and reporting.2009-10-04 01:21, By: dlzallestaxes, IP: [188.8.131.52]
L3: Changing payout date on 72tThanks for your reply, it is veryfrustrating dealing with some of the employees at these financial institutions that are supposed to be the experts. I’ve noticed a definite hands off policy when it comes to 72t’s. These institutions seem more worried being responsible for incorrect information rather thanbeing experts. Case in point, they will not code the 1099 code 2 for 72t’s.2009-10-04 12:42, By: jg, IP: [184.108.40.206]
L4: Changing payout date on 72tMost IRA Custodians/Trustees will not use a code of ‘2’ – when I used to work for a living we discontinued the ‘2’ at the release of the IRS notice.
The Custodian/Trustee has everything to lose and nothing to gain by using a ‘2’ code.
It is also totally in keeping with the fact that regardless of what 1099 code is used, an IRA is between the IRA owner and the IRS. 2009-10-04 12:49, By: Gfw, IP: [220.127.116.11]
L5: Changing payout date on 72tMy custodian is Fieldilty, and I haven’t had a problem with them. In the same token, my financial advisor is a CPA well versed in 72t’s, and he made sure Fieldilty did it right. Take care, Chris.2009-10-04 13:10, By: Chris, IP: [18.104.22.168]
L6: Changing payout date on 72tCould you give me the name and number of your Fidelity advisor. He may be the answer to getting this cleared up for me.2009-10-04 13:32, By: jg, IP: [22.214.171.124]
L5: Changing payout date on 72tThe most frustrating aspect of this 72t 1099R coding issue for me has been the fact that the custodians and the IRS are clearly not on the same page. The custodians seem to be aware of this but are stuck with a situation that has more than one interpretation and the IRS has not resolved it. In fact, the IRS seems totally oblivious to this issue. When I questioned the IRS on this, their reply was that I should simply have my custodian issue a new 1099R with the proper coding. All well and good *IF* the custodian is willing to do that, which most of them are not. One would think that the IRS would be aware of this situation and would actually DO something to rectify it. My guess is that they are sitting around their offices, scratching their heads, and wondering why they are getting such a blizzard of 5329s.
Oh, well. A moot point for me since I am now past that magic age of 59.5 and my SEPP ends in about 5 months.
2009-10-04 23:36, By: Ed_B, IP: [126.96.36.199]
L6: Changing payout date on 72tEd – remember that the IRS 1099R instructions indicate that a valid SEPP distribution should be coded 2 prior to 59.5, but 7 after 59.5. That means that you may technically need to change some of the dollars to a 2 and leave the rest as a 7.
As you indicated, you probably will not know what you are going to get until you open the envelope!
The challenge of a valid 72t plan seems to go beyond compliance with the technical requirements of the plan. Taxpayer must also become an interpretor between IRA custodian practices and inefficiences and IRS practices and inefficiencies, which remain somewhat artitrary and unpredictable.
And for dessert sprinkle in an occasional off the wall PLR………….2009-10-05 00:22, By: Alan S., IP: [188.8.131.52]
L7: Changing payout date on 72tAlan:
Yes, I know how 1099Rs should be coded for the age of the person making withdrawals and that we need to file a form 5329 to get the 72t exemption if there is no code 2 in box 7 of the 1099R. For some reason, custodians are unable to do this yet the IRS readily accepts an individual making this claim viaform 5329. In most cases, there is no 2 code used regardless of whether or not one has a valid SEPP.
My distributions are quarterly and paid on the 15th of every month divisible by 3. I should get a code 7 for all of this year, since my 1st quarterly distribution came after my age 59.5 half-birthday. As you mention, though, one never really knows what they will get until the envelope is opened.
That said, it seems pretty clear that the IRS expects a code of 2 for SEPP holders but accepts a code of 1with a5329 if no code of 2 is given. I’m not sure why the custodians do this. They seem to be saying that if they give a 2 code on the 1099R, they are accepting responsibility for the validity of the SEPP. I have looked at everything I can find on the IRS web site that relates to this and cannot find anything that supports this position. Also, as has been stated many times on this web site, IRAs are strictly between the IRS and the individual. So… how does any responsibility for the validily of the SEPP transfer to the custodian? I freely admit that I do not understand this, especially in light of the fact that the custodians seem to feel that this is the case yet I can find nothing that documents this. Have I missed something here? If so, can you direct me to a reference that supports thisposition among most custodians these days. I would appreciate that.2009-10-06 18:58, By: Ed_B, IP: [184.108.40.206]
L8: Changing payout date on 72tI do not understand what you would do with this information if it existed. If the custodians will not code it because THEY BELIEVE that it places some responsibility on them, then who are we/you to tell them that they must do something else. You can always move your accounts to another custodian if you can find one that does it the way you want it done, rightly or wrongly.
As a CPA I often find companies and taxing authorities doing things incorrectly. But I can’t get them to change their procedures, until I get Congress, state and local legislatures, and sometimes management to understand that changes should be made. ( Yes, I have been able to get the IRS to change some thingsthru Congress and the Taxpayer Advocate. I am a liaison for the accounting profession dealing with them on systemic and procedural issues, forms, etc.)
Unfortunately, they do not understand how big an issue this is to taxpayers, and on the other side they do not understand how stupid it is not to require SEPP 72-T plans to report their assumptions initially, and for each year thereafter. Only via an audit will IRS ever know that someone busted a plan because they do not track the required annual amount.2009-10-06 19:12, By: dlzallestaxes, IP: [220.127.116.11]
L9: Changing payout date on 72tWell, then, let me help you with that. As a scientist, I work and do business with people who behave rationally. If this is a decision that they reached because of quotable documentation, that is one thing. If this is nothing but a CYA response that they came up with and have no rational basis for it, then I do not need to be doing business with them. Knowing their rationale and what it is based upon is important to me. If it isn’t important to them, that is their problem and onein whichI do not need to share.
2009-10-06 22:11, By: Ed_B, IP: [18.104.22.168]
L10: Changing payout date on 72tThe IRS issued a notice that basically stated that IRA Custodians/Trustees
should not use a code of ‘2’ on a 1099 for a SEPP. While later they
issued a correction, they never really told the Custodian/Trustee what exactly
they were supposed to do.
Good documentation will always support SEPP actions. A
code of ‘2’ merely gives a false sense of security to the IRA owner and in reality means absolutely
I support not using a code of ‘2’ and letting someone use 5329 to
claim the exemption.
Don’t blame the Custodian/Trustee – please take your
case to the IRS.
Just my thoughts..
2009-10-06 22:25, By: Gfw, IP: [22.214.171.124]
L11: Changing payout date on 72t>Don’t blame the Custodian/Trustee – please take your case to the IRS.
Would do that if the IRS was even remotely aware that there is a problem here. My last contact with them concerning this issue showed that they have no clue that there even is a problem. I explained it to them but still got nowhere. Apparently, the IRS is satisfied with the 5329 band-aid procedure. So be it.2009-10-06 23:00, By: Ed_B, IP: [126.96.36.199]
L12: Changing payout date on 72tEd, you are aware of this, but many people probably are not.
If someone has a SEPP that is active beyond age 59.5 and valid, the correct code is 7, not 2. My impression is that many taxpayers probably figure that as long as their SEPP is active, all the 1099R coding should be changed to a 2. In those cases where 59.5 is attained during the year, they should technically split the dollars between 2 and 7. Having made this point, I doubt that coding them all with a 2 will result in any problems unless the total distribution goes up. In that case, it could trigger an inquiry because you have told the IRS that the SEPP is still valid through the end of that particular year and the IRS would not expect the distribution amount to increase (or perhaps I over credit their analytic abilities).2009-10-06 23:58, By: Alan S., IP: [188.8.131.52]
L13: Changing payout date on 72tAlan, you give the IRS way too much credit. They DO NOT track SEPP 72-T distributions. As a matter of fact, they do not even know that the distributions are from SEPP 72-T plans. They do not even track that these are distributions by someone under 59 1/2.
There are other significant items that they do not track. or example, starting a couple of years from now they will require mortgage companies to start reporting the amounts of mortgages and reefinancings because they just discovered that people were deducting interest payments that exceeded their annual GROSS INCOME !!!
Similarly, IRS will be requiring brokers and mutual fund companies starting for 2011 to report electronically to the IRSpurchase dates and cost info on all investment sales that year on the 1099_B reporting of the proceeds of all sales. I’ve already sent Nina Olsen, IRS National Taxpayer Advocate a two-page letter degtailing the numerous areas where these figures will be wrong. Furthermore, I informed herthat the present proposal makes no provision for taxpayers or practitioners to be able to correct erroneous cost info !!!!
The IRS does not track Capital Gains Cost Basis on ISOsfor AMT purposes, and therefore taxpayers can avoid the tax that they are supposed to pay when the stocks are ultimately sold.I had a (former) client whose tax that I calculated correctly was $ 45,000 higher than he got when he used Turbo Tax, because he used the wrong cost basis wheen he sold his ISO shares a few years later. I would not sign the return prepared his way.2009-10-07 04:25, By: dlzallestaxes, IP: [184.108.40.206]
L13: Changing payout date on 72tAlan:
Good point on the change that occurs at age 59.5. I am curious to see how Vanguard handles this for my IRA with 72t plan for tax year 2009. While I did reach age 59.5 early in the year, all of my quarterly distributions occurred after that date. My thought is that they will use a code of 7 for my2009 1009R. In fact, I did ask Vanguard whether they would issue two 1099Rs for a year in which only some of the distributions were pre-59.5 and some post-59.5. They replied that they would issue onlya single 1099R per account under those conditions. I assume that they would then leave it to the client to sort it out with the IRS.
On a related issue… my 72t plan ends on 3/15/2010. The 5 year requirement will be satisfied as of that date and the age 59.5 requirement is already satisfied. Since it is likely that Vanguard will code all of my IRA distributions as code 7 from now on, what do I need to do, if anything, to identify / separate the distributions that fell under the 72t plan from those that come after the 72t plan is completed? I once thought that they would simply issue two 1099Rs for that one year but am now thinking that they will not do this.
2009-10-07 05:42, By: Ed_B, IP: [220.127.116.11]
L14: Changing payout date on 72tTechnically, Vanguard and all custodians do not care, or even know, that you have a SEPP 72-T plan. They merely report the distributions. The taxpayer prepares the 5329 to indicate that there is an exception to the 10% penalty for early distributions before age 59 1/2. ( Similarly, brokers/mutual funds do not know, or care, that any of your contributions were “non-deductible”. The IRS knows when you file the form 8606.)
In both situations that is between the taxpayer and the IRS based upon forms the taxpayer files with the tax return.2009-10-07 19:29, By: dlzallestaxes, IP: [18.104.22.168]
L15: Changing payout date on 72tDLZ,
I have a SEPP with Vanguard, and although they warned me at the outset (in their SEPP applicationform I got online) that they would code the 1099-R with a 1, they also told me to file the 5329 each year, and they supplied the forms to compute my annual SEPP payment, so I believe they are well aware that I am taking SEPP payments. There is a 14 page form on their website that explains the SEPP and has a payment calculation worksheet that you must complete and submit when you request these payments. The figure it generated for my amortization matched Gordon’s calculator on this site, which was a good feeling.My other SEPP is thru LPL, and they code my 1099-Rwith a “2”, so I guess they also know it is SEPP.I think may beoverstating a bit when you say none of the IRA custodians knowthat you are taking SEPP payments. KEN2009-10-07 22:32, By: Ken, IP: [22.214.171.124]
L16: Changing payout date on 72tWhether they know or not, it makes little difference. Until teh IRS makes the process clear, you have about a 95% chance of gtting a code of ‘1’ and not ‘2’.
It isn’t going to change until there is new guidance issued by the IRS.2009-10-07 22:42, By: Gfw, IP: [126.96.36.199]
L17: Changing payout date on 72tEd,
To answer your question – for 2010, since you are already over 59.5, the correct Code on the 1099R is 7. That is true for distributions you take prior to your SEPP modification date as well as after the SEPP terminates. Therefore, any 1099R you get for 2010 that is coded with a 7 should be welcome, and I would not file a 5329. As indicated previously, Code 2 does NOT apply after age 59.5, even for SEPP distributions.
Exception: A Code 1 applies if you busted your SEPP, even after 59.5. Hopefully, that would not apply to anyone here…….2009-10-07 23:13, By: Alan S., IP: [188.8.131.52]
L18: Changing payout date on 72tAlan:
Thanks for the clarification. In the spring of 2010, we will be filing our 2009 taxes. That filing will still require a form 5329. The one after that will be for tax year 2010 and we won’t need to filea form 5329 from then on.
Once I get past 3/15/2010, my SEPP will have run its course and I will have entered “the golden age” of retirement investing. I will be able to take as much, as little, or none at all from my IRA… until age 70.5 rolls around, of course. At that point, Uncle Sam will once again be “helping” me figure all this out via RMDs. The good news there is that I will very likely be distributing more from my IRA for living expenses than the RMD rules require. As I understand RMDs, theyare simply a way for the government to limit tax sheltering and start collecting some of the tax money that wastax deferred via the IRA program.2009-10-07 23:33, By: Ed_B, IP: [184.108.40.206]
L15: Changing payout date on 72t>Technically, Vanguard and all custodians do not care, or even know, that you have a SEPP 72-T plan.
Yes, I can well imagine them scratching their heads and wondering why I bothered to fill out their 7 page SEPP application form, sign it,and send it in. They are probably also wondering why they are distributing the exact same amount to me each quarter for the past 5 years.
2009-10-07 23:18, By: Ed_B, IP: [220.127.116.11]
L16: Changing payout date on 72tI didn’t fill out any application form at Vanguard. I told them I was taking a SEPP payment, confirmed that they really didn’t care, and filed a 5329.
I find it’s much simpler to take one payment per year. Fewer things can go wrong.2009-10-08 08:39, By: Eureka, IP: [18.104.22.168]
L17: Changing payout date on 72tOne payment per year – that’s what I’m going to do. And yea, the IRA custodians don’t care, in fact, when I talked to Fidelity about doing a SEPP a while back when I was first looking into it, they gave me wrong information, plus really didn’t want to have a thing to do with the SEPP, so I wouldn’t trust the advice of an IRA custodian unlesss double-checked with people on this forum.2009-10-08 11:17, By: mikex, IP: [22.214.171.124]
L17: Changing payout date on 72t
The attitude of custodians has evolved in the past 5 years. When I started my SEPP in 2005, they seemed to be a lot more SEPP friendly. These days, they seem to regard SEPP in the same way in which a vampire regards a sharpened stake.
Taking a single annual payment is simpler but works best for those who are really good at budgeting their money over an extended period of time. Lots of us got so used to budgeting over the short time period between paychecks that it is difficult for us to manage a much longer time period. I’m sure that I could have managed it but went witha quarterlydistribution plan, which has worked very well for me.2009-10-08 18:27, By: Ed_B, IP: [126.96.36.199]
L14: Changing payout date on 72tEd: I too have my 72T w/Vanguard. I turned 59.5 last year and they coded my1099 with a “1”. They only issued one 1099 even though 7 mos. of distributions occurred after 59.5 – so don’t be surprised is you still receive a code “1”. They may code is a “7” since all of your distributions were after 59.5, but I’m not too sure about that. I’ll be curious to see if they issue a code “7” to me this year since I was over 59.5 for the entire year.
In reading Alan’s responses here, I probably should have filed my 5329 with separate amounts – Code 2 for prior to 59.5 & Code 7 for after 59.5. but I did not do it that way. Hopefully, there will be no problem.
Not sure what I should do going forward if they issue a Code “1” this year. Seems like Alan is stating no need for a 5329 after reaching 59.5 even if SEPP is still in progress, but I guess that’s only if Vanguard issues a “7”. If they continue to use code “1”, I would think I need to continuefiling the 5329 until completion of the SEPP which will end at the end of 2010.
meb242009-10-08 12:10, By: meb24, IP: [188.8.131.52]
L15: Changing payout date on 72t
Thanks for sharing your experience with your custodian.
If Vanguard codes the 1099R properly for client age, then they will indeed provide a “7” code for tax year 2009. This code is not SEPP related, so they should have no problem issuing it.
As to form 5329… are you saying that you filed two of these forms for the same tax year, one for before and one for after age 59.5 distributions,or that you differentiated the before and after age 59.5 distributions on the same form? I’m not in this situation but am curious as to how this should be handled.
2009-10-08 18:35, By: Ed_B, IP: [184.108.40.206]
L16: Changing payout date on 72tEd – No, I only filed one 5329 last year. The one and only1099R was issued with a “1”, so I filed the 5329 with a Code “2”. I did not separate the $$before and after 59.5 disbursements-didn’t know that Ishould have. I have a feeling the 1099R for this year will continue with a “1” since the 72t has not run for 5 years yet, but I’ll know for sure in a couple of months. If this years 1099R is coded with a “1”, should I file 5329 with a code “7” since all of my distributions this year were after age 60; and if coded with the “7” (as would be correct)-then I need not file the 5329? I will have completed 4 years at the end of this year, and I do not want to bring any undue attention from the IRS because it is just a headache to deal with them. I have already had one inquiry from them which was closed out after referring them to my 5329, which I had already filed. This year Ichanged to the RMD methodwhich I willcontinue again next year (that will be my last year for the 72t) so I’m afraid changing now to a “7” or not filing a 5329 will possibly send up Red Flags. Everything is on the up and up, but just thethought of having an inquiry from the IRS is unsettling.2009-10-09 20:39, By: meb24, IP: [220.127.116.11]
L17: Changing payout date on 72tMeb,If they code it with a 7, I would do nothing since that is the correct code for all post 59.5 distributions EXCEPT failed SEPPs. If you get a “1”, then you have no choice but to correct it with a 5329, but use Code 7 for distributions post age 59.5.I would not be concerned if anyone coded a post 59.5 distribution with an “02”. That means no penalty, same as a 7, so would not worry about the “7” being technically more correct. 2009-10-09 20:56, By: Alan S., IP: [18.104.22.168]
L17: Changing payout date on 72tI would file separate 5329 forms, one for the pre-59 1/2 amounts using the SEPP 72-T exception, and then a separate one for the post 59 1/2 with a code “7” if the custodian did not do it. After the 5-year period is up, and when you are 59 1/2, then all future years should be oded “7” by the custodian. I would call them before 12/31 of the “transition” year, and the following year to make sure they will be doing it right, rather than waiting to get wrong forms.2009-10-09 20:57, By: dlzallestaxes, IP: [22.214.171.124]
L18: Changing payout date on 72tLast year was actually the transition year and they only sent one 1099R with the “1” for both pre-59.5 and post-59.5 distributions.As stated above, I filed the 5329 with a “2” exception code. I see Ishould have separated it myself on the 5329, butI don’t think I’ll get involved with correcting the 5329 for last year for thepost-59.5 distributions since it doesn’t change the outcome. The IRS is not aware of when the distributions were made, only the total annual amount distributed.However, I will give them a call on Monday to see how this years 1099R will be coded since all distributions were post-59.5. Hopefully, they will say it will be a “7” because it seems Vanguard says “this is the way our system is set up” when they don’t want to make a change even though we know after 59.5 distributions should be coded with a “7”. Thanks,meb242009-10-09 21:35, By: meb24, IP: [126.96.36.199]
L19: Changing payout date on 72t> “this is the way our system is set up”Don’t you just love it when someone offers an excuse of this type? It begs the question of “Well, who set up that system?”. I am afraid that we all know that systems can be changed and often arequite easily. The original system may involve a computer program but they too can be edited… and often are!Vanguard’s system once sent me a dividend check from a fund that was in my SEPP IRA account. All dividends, interest, and fund distributions were set up by me to go into the money marketfund in that same SEPP IRA account, thus no money added or subtracted from the account other than via market moves or the exact calculated amount for my SEPP distributions. I do give credit to Vanguard for fixing this problem quickly. It could have been a very serious issue but, thankfully, was not. This occurred because of a programming glitch in their system that reset the dividends and interest payments when Vanguard converted one of my mutual funds to Admiral class shares. They said that they were unaware of this problem until I contacted them. I am inclined to take them at their word on this. The fact that this problem has not recurred indicates that they did fix the program.2009-10-09 21:45, By: Ed_B, IP: [188.8.131.52]
L20: Changing payout date on 72tEd – I’m not complaining about Vanguard. I’m actually pretty satisfied with their service. Have never had a problem with my SEPP Plan with them.I spokewith them abt. aweek ago on another issue – regarding cost basis onnon-retirement funds that were inherited almost a year ago. Back in Feb. that told me the information would be viewable online in Sept. So, the first week of October, I called them because it was not updated online. The Rep. told me they changed the “purge” date (Whatever that means) to the end of Oct. Seems to me it shouldn’t take 9 months to get updated information for viewing online, Rep said, “this is the way our system is set up”. I know I could calculateit myselfw/pencil and paper (and a calculator) but my other non-retirement funds get updatedasDividends, etc.take place. I’ll give it another month and check back. Of course, if I wanted to sell or exchangeout of a fund before the info is available to me online, they would figure it out for me, but I just like having the information at my fingertips. Just a small inconvenience I guess. Overall very please with Vanguard service.We’ll see what happens when I check with them on Monday (maybe I’ll even call tomorrow-they have reps. available on Sat. as well) regarding 1099R Code for post-59.5 SEPP withdrawals.meb242009-10-10 00:24, By: meb24, IP: [184.108.40.206]
L21: Changing payout date on 72tMeb:I did not take your comments on Vanguard as complaints; merely you relating yourexperiences with them.I, too, and basically satisfied with them but would prefer to see them exceed my expectations, rather than merely meet them.I agree that useful info should be available in a timely manner and more than 9 months after the fact is not it. If we are to make good decisions, we need the most up to date and accurate info we can get. I find this less than impressive.Yes, they do have people there on Saturday. If you have the Voyager service, you can usually get answers to any questions you might have. I have had reps tell me that they weren’t sure of the answer to a detailed question but they got the answers and called me back when they said that they would. Rather than give me some canned off the cuff answer, they made sure that their answer was correct and they followed through on their promise to call me back. I appreciated that.I also have an account at Scottrade and have had good experiences there as well. Their brokerage fees are minimal, the trade executions rapid, and their web site is decent if not stellar.My wife has her IRA with TD Ameritrade. Their web site is very good andthe range of available investments about as good as any but it bothers me that they only offer *1* money market account, theirs, and that it usuallypays considerably less than other MM funds out there. A few years ago, they were paying around 2.4% on cash in their money market account while Vanguard’s VMMXX money market fund was paying just over 5%. Not that we keep a lot of our portfolio in cash. It’s really just a sweep account. Even so, it is better to earn more while waiting for a good investment to come along than it is to earn less. Other than this one issue, we have been satisfied with TDA.2009-10-10 02:37, By: Ed_B, IP: [220.127.116.11]
L17: Changing payout date on 72tMeb:Thanks for the clarification. It would seem reasonable to me that your next 1099R will be coded as a 7 since the entire year of distributions occurred after you turned 59.5. Remember… the code 7 is completely unrelated to any SEPP that we may or may not have running at the time. It is strictly an indication of age. I also expect my next 1099R to be coded as a 7 because of this. If it is, then I need not file a 5329. If it is anything else, then I will have to send in the 5329 correction form.A agree wholeheartedly with your desire to end your SEPP under the IRS radar. I believe that my SEPP was done in exact accordance with the applicable IRS rules and have thoroughly documented the entire process. I can and will vigorously defend what was done and when. Still, if no inquiry from the IRS occurs, I will be quite pleased with that outcome and will do my best to see to it that no red flag waving occurs between now and the end of my SEPP on 3/15/2010. I will continue to maintain those records for at least 5 years after my SEPP ends, however… just in case.2009-10-09 21:35, By: Ed_B, IP: [18.104.22.168]
L18: Changing payout date on 72tI fully agree with the above, and the concept of not creating red flags. While the following comment is obvious, it is never mentioned so I will float it out there.There are hundreds of red flags that the IRS watches for, and they change from year to year. They have recently announced a majorcampaignlookingclosely atlarge itemized deductions for mortgage interest. But the point is, the tax return could contain any number of red flags totally unrelated to a 72t plan. But if the IRS decides to audit, there is no way that they are not going to look closely at the 72t plan as part of the audit. The bottom line is that when you have a 72t plan, you generally cannot be as aggressive in other areas as you might otherwise be, when there are several years of 10% penalties at stake plus interest.2009-10-11 02:34, By: Alan S., IP: [22.214.171.124]
L19: Changing payout date on 72tYes, I agree. When I rec’dmy IRS inquiry a few years ago they included two issues – 1. An approx. $10 interest deduction I took for an education loan (PLUS).2. And questioned the 10% Penalty for IRA withdrawal prior to 59.5. (SEPP)That year, I did not receive a 1099 (not sure it may becalled a1098) for the PLUS Loan, and the loan servicing company told me sincewas under some amount (don’t remember if under $10 or under $100) they don’t have to issue a 1099 (1098?), but I deducted it none-the-less. It may have been this small (NO 1099 issued)that brought the 72T into play even though the 5329 was filed with my tax return.After I contacted them about the 5329 being included with my other forms, they said it was not necessary to supply documentation about the PLUS loan interest deduction since it was so small.Not sure which RED flag initiated the inquiry, but I definitely try to keep everything documented and under the radar.No more mortgage deduction here so that won’t be an issue. p.s. Didn’t get a change to contact Vanguard Saturday, but will do so tomorrow unless Columbus Day is a holiday for them. I don’t think it is. 2009-10-11 22:29, By: meb24, IP: [126.96.36.199]
L20: Changing payout date on 72tEd: I checked with Vanguard yesterday, and as you suspected they confirmed my 1099 this year will be coded with a “7”. So as Alan and others have stated, I will not need to file a 5329.My only concern is, now that I changed to the RMD method for the last two years (this year and next) it may send up the dreaded Red Flag since the annual amount will be less than previous 3 years, but hopefully not.meb24 2009-10-13 15:28, By: meb24, IP: [188.8.131.52]
L21: Changing payout date on 72tNot a chance in the world that this would wave any red flag at the IRS. Their system isn’t programmed to compare IRA distributions year-to-year. They only discover busted SEPP or missed RMD if they audit a taxpayer. 2009-10-13 16:30, By: dlzallestaxes, IP: [184.108.40.206]
L21: Changing payout date on 72t Meb: Thanks for relaying the info about how Vanguard handled your 1099R. I appreciate hearing that and expect the same treatment on the 1099Rs I receive in the future.
Switching to the RMD method will reduce the amount distributed to you for the next 2 years. Since the IRS gets copies of these 1099Rs, one would assume that they would spot a difference between the last 3 1099Rs and the next two. While I don’t think that they keep track of SEPPs, the amount distributed and taxed is a number that they have. Will they question this change in amount distributed? Perhaps. Your 1-time switch to the RMD method is permitted, so should be a perfect answer to any question they may have regarding a change in distribution amount.
2009-10-13 21:02, By: Ed_B, IP: [220.127.116.11]