Question(s) on when a broken 72T should/must be reported.
L1: Question(s) on when a broken 72T should/must be reported.
Please excuse me in advance if this has been addressed before. But I just want to make sure I have all my ducks in a row before this happens, and I have had trouble locating the answer to this question.
Due to an unavoidable hardship, I must break my current 72T by takinganotherdistribution three months early. My 72T began in tax year 2010, and I will turn 57 on December 4. I have received my full distribution for 2011 already, and so taking another
distribution now will break the 72T. I wish there was another way but there simply isn’t, and so I must take my medicine and move forward. I only have one IRA, and so it is what it is.
I acknowledge the 10% penalty plus interest I will incur for 2010and 2011. What I would like to know is, do I notify the IRSimmediately that this is occuring (and then filing form 5329 for 2010 as fast as I can),or do I notify the IRSof the broken 72T
when I file my 2011 taxes?
All responses are appreciated. Thank you in advance!
2011-09-27 00:38, By: YHC, IP: [188.8.131.52]
L2: Question(s) on when a broken 72T should/must be reported.
This is a good question, because the Inst on p 53 of Pub 590 state that your retroactive penalty should be reported on the 5329 for the year you actually busted the plan, in your case 2011. But you may have a choice as explained
The problem withthe Pub 590instructionsis that the interest clock continues to tick on the interest due on your 2010 distributions if you pay the tax with your 2011 taxes vrs paying the 2010 penalty as soon as you bust the
plan. Right now you are looking at 6 months of added interest on your 2010 penalty if you compare paying the penalty and filing a 2010 5329 now vrs waiting until March or April and reporting the entire penalized amount in an explanation attached to your 2011
5329. Frankly, I cannot tell you what to expect if you deviated from the Pub 590 procedure and filed a 2010 5329 and paid that penalty now. In fact, you would probably amend your 2010 5329 claiming the exception by filing an amended 5329 showing Code 1 and
paying the penalty. That cuts the interest period that you would be billed for to around 6 months. I really doubt that the IRS would return your check. Then file the 5329 for 2011 with a new explanation including the statement that you already paid the 2010
penalty, and with your 2011 return send the check for the 2011 penalty.
OR – since interest rates are low, you could follow the Pub 590 recommendation and report both years on the 2011 5329 with explanatory statement.
In addition, you might have another penalty exception that would absorb some of your 2010 and 2011 penalty. If so, you could include the proper exception code for the other penalty waivers on the appropriate 5329 and pay the
net amount due. Check Pub 590, p 52 for a list of all the IRA penalty waivers.
2011-09-27 01:23, By: Alan S., IP: [184.108.40.206]
L3: Question(s) on when a broken 72T should/must be reported.
Thank you very much, Alan S. I will give Pub 590 a good going over to see what is best for us. Again, I appreciate the time!!
2011-09-27 03:23, By: YHC, IP: [220.127.116.11]