Mid year distribution too much taken out

L1: Mid year distribution too much taken outCPA here just had a financial advisor call me after the fact. Trying to fix this.
Taxpayer (date of birth 3/3/59) $756,268 in IRA 57 years old, last Aug 2016 was told by advisor to take out 3,500/14,000 month/year. I can calculate is 34,311/2,859.25. I read somewhere in year one you can do all of it 34,311 once a year or a monthly calc. I am hoping you will tell me even though 14,000 is greater than the monthly calc. because it is less than 34,311 we can salvage this calc at the end. In 2017 they have stopped distributions for now until we can make sure what options are. So far in 17 that have taken 28,000. In 2018 they turn 59 1/2. give me ideas or options?2017-08-31 21:10, By: Mike, IP: [96.95.85.98]

L2: Mid year distribution too much taken outNot sure I follow exactly what was done here.
Since this is a 5 year plan, it is safer to take out the full annual calculation for 2016 and not pro rate. However, if taxpayer pro rated the annual calculation 5/12 based on first distribution in August 2016, I would continue the plan and take out the full annual amount in 2017. What the advisor said to do makes no sense whatsoever. In other words, only two exact distribution amounts are possible for 2016 and the pro rated one is risky compared to taking out the full annual.
Once the correct annual amount is determined, it does not matter how that total is reached. It could be through monthly, quarterly, annual or random distributions. Only the final 1099R total matters to the IRS.
First, determine if this plan was busted in 2016 or not. Sounds like it was. If so, the penalty will be owed and at age 58.5 presently it may not make sense to start another plan.2017-08-31 23:56, By: Alan S, IP: [24.117.172.15]

L3: Mid year distribution too much taken outThank you for response, to clarify the advisor said to take out 3,500 a month of which 14,000 was distributed Sept – Dec 16 or a 42,000 a year calc which is incorrect. I thought I read somewhere you can do annual or monthly etc., as long as you make up the difference at the end of the 60 month period. So in your opinion they busted this one.
If they did bust this penalty on the 14k and 28k this year at a minimum, set up a new one
with a year to go like you said is it worth it. Assume if we do a new one, we recalc using most recent month end, etc. Do they actually have to move money to a new IRA or draw a line in the sand and recalc.
Thanks,2017-09-01 13:22, By: Mike, IP: [96.95.85.98]

L4: Mid year distribution too much taken outCan Mike “bust” his plan as of 12/31/2016 because he withdrew too much in 2016 ? Then he would owe the $ 1,400 penalty.
Then could he establish his new plan as of 1/1/2017 using the 12/31/2016 balance, and the $ 28,000 he has taken during 2017 be counted against his new SEPP towards the new annual amount ?2017-09-01 15:45, By: dlzallestaxes, IP: [173.75.252.16]

L5: Mid year distribution too much taken outYes, that is one of the ideas that came out of our meeting.
We will implement that strategy.
thanks for your insight.
2017-09-01 18:11, By: Mike, IP: [96.95.85.98]

L6: Mid year distribution too much taken outI would have the “financial advisor” or his firm reimburse you the $ 1,400 penalty because of his wrong advice. It may be below the deductible they have for their Professional Liability Negligence policy. But they might be able to deduct it as a “business expense”.
If you want to stay with him, an alternative would be for him to waive any investment management fees up to that amount.2017-09-01 18:18, By: dlzallestaxes, IP: [173.75.252.16]

L2: Mid year distribution too much taken outI didn’t run the numbers, but did they do the life expectancy or amortization for the calculation.2017-09-02 03:31, By: brkr12002, IP: [68.98.39.203]

L2: Mid year distribution too much taken outMike, You have lots of replies so far, but I just tried to figure out where his advisor got those bad first year #s. (I agree with your calcs.) Almost looks like he took 5/12th’s of the correct $34,311 total and got $14,296.25 for pro rated year one total for 5 months, then rounded it down to an even $14,000 and made further mess by then dividing that by 4 (months) instead of 5 to get his monthly total of $3,500 for first prorated year (and beyond), with August (5 month pro-rated) start, thus the $3,500 monthly instead of the correct $2859.25 you mentioned. If he was giving 4 month pro rated annual yr one figure to client, that is only $11,437 yr which is not close to $14,000 he was given or the correct 5 month $14,296.25 total. Just my guess as to how this got so bad.2017-09-02 04:02, By: Ken, IP: [173.48.101.123]