Determine penalty for breaking 72t
L1: Determine penalty for breaking 72t
We have a client that might potentially break his 72t plan. We are aware that he would need to pay the 10% in taxes that were “waived” from the first 72t payment until the time he stops participating in 72t.
Does the IRS publish information on the penalty that is in addition to the 10% taxes? Is there a way to figure out how much the penalty would be?
The 10% amounts that would need to be paid are as follows:
2011 $2,698.96 (we have forecasted the amtthrough 12/31/11)
His 72t is scheduled to continue until late 2018, as he is currently 52 years old. Are there penalties associated with the future payments that were expected to be withdrawn during 72t until he turns 59 1/2? Thank you
2011-10-13 23:13, By: BRS, IP: [22.214.171.124]
L2: Determine penalty for breaking 72t
For future payments, the penalty would be 10% on anything withdrawn till 59.5, but there is no obligation to take out any particular amount after the current plan is busted. Perhaps a new plan could be started with a new set of planning parameters.
I am not aware of the details the IRS uses in calculating the late interest due on prior penalties after busting the plan. Interest rates for underpayments have been low for the duration here, probably an average around 4%. The interest clock would probably
start in April, 2010, which is only 18 months ago. So if you use 18 months worth on the 1,125 and 6 months of the 2,699, you would be close enough for an estimate. The 2011 penalty is not due until April, 2012. Therefore, interest would be quite small compared
to the actual 10% penalties due on these distributions.
The big picture is that busting a plan that is only 2 years old is much less costly than busting it later, and extraordinary measures to not bust the plan now may eventually fail in the near future anyway. It may be best to bust it ASAP and start a new plan
better designed to last until 59.5.
2011-10-13 23:54, By: Alan S., IP: [126.96.36.199]