penalties

L1: penaltiesDear GFW,
My mother retired at age 52 and started taking a monthly income under IRC rule 72t
to avoid the 10% penalty. She unknowingly requested an additional $3000.00 from her account without seeking advice from her financial planner. Due to that additional withdrawal
she is now being penalized the 10% early distribution penalty. Is there a way to fix this?
Can she repay the amount taken and re-establish the 72t to good standing. I look forward to hearing from you.
Frank Esposito 2005-02-25 14:44, By: espo, IP: [64.12.116.202]

L2: penaltiesYou don’t mention when she received the extra payment. Your best bet is to have her talk to her tax accountant – soon!2005-02-25 19:32, By: Gfw, IP: [172.16.1.77]

L2: penaltiesDoes any one know if she could possible get relief by placing the $3,000.00 into another IRA within 60 days and claim the 2 IRAs as one for SEPP? Good Luck.
Doug 2005-03-04 09:49, By: Doug, IP: [207.40.145.38]

L2: penaltiesHi Doug:
I think if she tried your method that would open another door which she wants to keep closed. Specifically, I think by trying to “fake it” the courts would call it “fraud” which would give her two problems instead of one.
Based on the limited information provided, my guess is it’s time to pony-up and deal with a “busted SEPP” and not create another disaster.
Jim2005-03-04 09:57, By: Jim, IP: [70.184.1.35]

L2: penaltiesHello Frank:
There are two potential ways to correct this situation:
1. If less than 60 days have past, your Mother can simply re-deposit the $3000 back into the same or different IRA thsu executing a rollover effectively erasing the extra $3000.
2. If more than 60 days have past; she may apply for relief under Rev. Rule 2003-16 which can strectch the 60 day window to a longer time frame thus premitting the same re-deposit of the $3000. Granting relief under RR 2003-16 is a facts & circumstances evaluation by the IRS and much rests on the intent of the taxapayer. Cost is $95 plus the professional fees to prepare the request.
TheBadger
wjstecker@wispertel.net
2005-03-04 10:00, By: TheBadger, IP: [66.250.23.21]

L2: penaltiesSince Frank’s Mom “is now being penalized the 10% early distribution penalty,” I would assume the 60-day window for the additional $3,000 withdrawal has passed, so the “rollover option” doesn’t exist. My assumption brings me to the real problem with this question, specifically that we don’t know enough facts. Like Gordon said, what date did she take the extra distribution? Let me add, when did she take her first distribution which tells us how long the 72(t) has been running. Also, what amountare the monthly distributions? With this information I would adda third possible alternative to Bill’s list:
3. Compare the costs of paying the penalties and interest to “bust” this plan and starting a new 72(t) plan, to Item 2 of filling for relief from The IRS.
Her tax advisor should be the one to evaluate this entire situation.
Now I take my “hat in hand” and extend my appologies to Doug for totally missing the logic in his idea about the 60-day rollover and having two IRA’s as part of the entire SEPP, which is absolutely correct. I think I was focusing on the fact she is already being penalized so the 60-day period, I believe, would have passed.Any attempt to “re-create” a rollover would be viewed as fraud.But your suggestion as writtenwould be fine.
Jim2005-03-05 07:45, By: Jim, IP: [70.184.1.35]