education costs

L1: education costs When taking sepp is it possible to take money out of the plan for education expenses withoutbreaking the 72t?????2006-10-17 16:34, By: sm, IP: [68.23.181.223]
L2: education costsWhile certain education expenses are an exception to the 10% penalty, you can”t take funds designed to meet educational expensesfrom a SEPP without busting the SEPP.
Look for another source of funds.2006-10-17 16:52, By: Gfw, IP: [172.16.1.70]

L2: education costsGordon: While I agree with your answer, I have had CPA”s tell me that it won”t bust the 72t. Frankly, I don”t think it is worth the risk.
Does anyone know if any PLR”s have been issued on this, or a similar situation.2006-10-17 17:01, By: Grt, IP: [24.145.246.83]

L2: education costsYour CPA may want to re-read 72(t) as it lists the only exceptions (reasons to bust a SEPP)as death and disability. You can use the link at the top to find the entire code section.

2006-10-17 17:13, By: Gfw, IP: [172.16.1.70]

L2: education costsThat”s probably true, but, doesn”t it also say that once the annual amount is calculated it cannot be changed each year, i.e. recalculation. It now appears that annual recalculation is permissable based on PLR”s.
2006-10-17 19:13, By: Grt, IP: [24.145.246.83]

L2: education costsOne reason many believe that all the exceptions apply is the deceptive wording in Pub 590, p 50 where reference includes “if another exception applies”. It may be that another exception may waive part of the current year”s early withdrawal penalty, but the SEPP is still busted barring death of disability.
The posted situation is a classic example of how retention of an IRA account outside the SEPP universe can provide meaningful flexibility. The education distribution could be taken from the other non SEPP IRA and the early withdrawal penalty would be excused AND the SEPP would be unscatched.2006-10-17 21:53, By: Alan S., IP: [24.116.66.98]

L2: education costsThis is precisely the issue that was raised in the Spring of 2005 & 2006 when “Irving”, the IRS computer sent out alot of deficiency notices to taxpayers that had SEPP distributions as well as other distributions for other qualified reasons and/or took unqualified distributions from a separate IRA. In short, Irving”s logic was apparently insufficient to tell which distributions were coming from which IRAs irrespective of how the 1099Rs were coded. Once we replied to the IRS computerized deficiency notices and explained the situation and submitted the evidence all was fine. Most of my clients got “closure” postcards about 90 days later.
In summary, it is pretty clear that additional distributions from the SEPP IRA for educational expenses or other allowable reasons is unacceptable and causes a busted SEPP plan.
TheBadger
wjstecker@wispertel.net
2006-10-18 09:37, By: TheBadger, IP: [72.42.66.60]

L2: education costsI”m having a hard time wrapping my mind around this one. It appears I incorrectly assumed that you could set up 72t – code all distributions under these assumptions as “early distribution exception” on a 1099 and IN ADDITION, do distributions for educational expenes. Now you are saying that “busts” the plan, but avoids the 10% penalty. We”ve been doing this since 2003. Are you saying that technically, we could have to pay a 50% penalty on 3 years of 72t payments 🙁 ??????????2006-10-25 11:04, By: Confused, IP: [24.172.244.211]

L2: education costsConfused – not 50%, but 10% plus any past due interest. The only exceptions to additionalSEPP withdrawals are death and disability.
You may want to get professional help and discuss the options.One of the most knowledgeable is Bill – look on the main site and the “Need Individual Professional Help” button.2006-10-25 11:18, By: Gfw, IP: [172.16.1.70]