L1: Premature DistributionsI began taking a monthly SEPP from my traditional IRA last February when my work as a 1099 telephone engineering contractor began to slow and income not consistant. In June the project was stopped all together and I have been out of work since then, with my 4 months reserve close to exhaustion. I need to continue the SEPP monthly and will for at least the 5 years required to meet the exemption rule, but I also need to access more money to pay my son’scollege tuition and expenses, health insurance premiums, and other expenses. Reading through the publications on the IRS website and the copy of the 72t rule on this website, i don’t see where it precludes other one-time type premature distributions for expenses that either meet the exception rulesfor exemption form the 10% or don’t.Can someone show me where it says you can’t havea SEPP series going AND make otheradditional premature distributions? It sounds to me like it reads that all premature distributions are to be banged against the exemption rules and if they fit, they fit, right?2009-08-12 22:56, By: LJD, IP: [188.8.131.52]
L2: Premature DistributionsNot exactly. However, the recent tax court decision “Benz vrs IRS” does throw considerable doubt into the status of additional distributions that meet the higher education exception. And by extension, it might also excuse other additional distributions that also receive an exception under Sec 72t. But note that letter rulings or tax court decisions are specific to the particular case, and there is considerable risk in automatically extending them to a different case.
Prior to Benz, the only exceptions to taking the exact amount only from your SEPP account were death and disability. Additional distributions that carried their own exception were penalty free, but they exposed the entire prior amount of non penalized distributions to penalty recovery plus interest.
Therefore, I believe that your situation is in limbo and there are any number of approaches you could take ranging from secure actions to highly risky actions where you would in effect be entering an IRS lottery or triggering a situation where you would need an expensive letter ruling request.
Following is a link to a discussion of the Benz case:
2009-08-13 00:29, By: Alan S., IP: [184.108.40.206]
L3: Premature DistributionsPlease give us the information needed to give you an intelligent response.
1. I assume you mean February 2009, not 2008.
2. How much was the value of your IRA account(s) as of the preceding 12/31 ?
3. How much did you withdraw, and when ?
4. How much is needed for tuition for 2009 ?
5. Health insurance premiums for 2009 ?
6. Medical expenses for 2009 ?
7. Your date of birth.
It is possible that the distributions so far in 2009 are all actually eligible for the various exceptions, and may be also in the future years. If so, then you might not need a SEPP 72-T, or a much lesser one. In that case, you might consider having one IRA account for a SEPP 72-T, and a separate account from which to take the “exception payments”.
2009-08-13 01:02, By: dlzallestaxes, IP: [220.127.116.11]