L1: Excess 72T
I have been taking 72T for several years. I have an emergency and wish to draw an amount exceeding my required 72T. I know I have to pay a 10% penalty. My questions are as follows:
-is the overage amount the only amount subject to the 10% penalty or is it the entire yearly distribution?
-I know I have to report the overage to the IRS, but do I pay the penalty and interest as of the day that I withdraw the excess amount or do I wait until I file my 2011 tax return?
2011-09-30 02:19, By: Mars, IP: [220.127.116.11]
L2: Excess 72T
First of all, if you bust a plan you have been running for several years, all your distributions back to day 1 will be subject to the penalty. Therefore, particularly in your situation, you should try to tap any other possible
source of funds so that you can finish your plan without penalty. For example, a loan for the remaining period between now and the modification date for your plan even at a high interest rate would be preferable to busting the plan.
If you bust the plan, the only amounts that would not be penalized back to the first 72t distribution would be:
1) Amounts that your IRA contained from non deductible contributions, (your basis in the IRA). If you have that situation, you would be filing an 8606 every year to report your distributions and determine the taxable amounts.
Only the taxable amounts would be penalized.
2) For years after 2007, if you have a different penalty exception than the 72t exception (ie high medical or higher education costs), you can file a 5329 and avoid the penalty by changing the exception code from an “02” to the
3) Any distributions you took after age 59.5 would not be penalized, but it sounds like your plan will end at 59.5.
If you bust the plan this year, the amount will be due by 4/15/2012. However, the amounts penalized from prior years will still have the interest clock running until you pay the penalty. But the interest rates change quarterly,
and the current rates are fairly low, so waiting until early spring will not cost you alot more.
But you really need to explore all possibilities to save your plan if you can.
Note: If your emergency involves a permanent disability, your plan can end without busting it. If you collect SSD, the 72t could end effective with the date the award was effective, which is always several months or even years
before the award is actually made.
2011-09-30 03:22, By: Alan S., IP: [18.104.22.168]
L3: Excess 72T
Thank you so much Alan for your very thorough explanation. I will take you advice and seek other altermatives. I do not turn 59.5 for another 5 years.
2011-09-30 16:40, By: mars, IP: [22.214.171.124]
L2: Excess 72T
The recent question posted by YHC has a detailed answer by Alan S.’s to the same type ofquestion. The 10% IRS penalty that is owed will beon all 72T distributions you have taken (since day one) up thru the ones inthe year when you break
the plan. Intereston the unpaid 10% penalties will also be assessed by the IRS on all but the most recent year, as I recall, but that may not be 100% correct. Ken
2011-09-30 03:27, By: Ken, IP: [126.96.36.199]