early withdrawal

L1: early withdrawalI have been taking paymentssince01/012004. Set up a 72t and tookagreed onamount of 35k in 2004 withno overage.In second year in March 2005 I withdrew 35K and set up new 72t with anew intrest rate. Is my penalty based on the additional 35k in 2005 or also on the amount that was withdrawn in 2004 making it a 10% penalty on 70K. Thank You2005-11-27 07:45, By: edward8916, IP: [68.218.163.108]
L2: early withdrawalHello Edward:
Based on the facts provided you owe $7,000 in penalties plus interest on the $3,500 attributable to 2004.
TheBadger
wjstecker@wispertel.net
2005-11-27 08:17, By: TheBadger, IP: [66.250.23.21]

L2: early withdrawalWould it not be possible for Edward to perform annual recalculation, rather than pay the penalties and interest?2005-11-27 22:31, By: Jeff, IP: [198.36.32.9]

L2: early withdrawalA minor point if recalculation is to be used, then it should be included in the initial plan specifications, not after the fact.
Many IRA Custodians/Trustees want to see the plan assumptions at time of implementation in order to use a code of 2′ on the 1099. If recalculation wasn’t included in the initial specifications and takes place in the second or subsequent years, you’ll probably have to file 5329 to get the exception.
A lot would also depend on how the plan was busted the original post didn’t state, but the benefit of using a higher interest rate would be diminished or non-existent in the face of $7,000 of penalties. Sounds like a little more planning should have been done up front.2005-11-29 06:59, By: Gfw, IP: [172.16.1.71]