SEPP Amount Too High

L1: SEPP Amount Too HighHere are the facts. SEPP calculation said $1,000 per month. Taxpayer requested 20% withholding. IRA trustee took the $1,000 amount to be net, so made the gross distribution $1,250 less 20% withholding = $1,000. Error wasn”t discovered until almost 3 years had gone by. I have checked regs and PLRs but can only find information where SEPP amount was understated and a catchup was allowed by the IRS. Trustee is suggesting going to $1,000 per month gross on a go forward basis. Any thoughts on whether this would still qualify for SEPP as an administrative error on the part of the trustee? 2007-03-21 11:28, By: thewoz, IP: [63.76.139.12]
L2: SEPP Amount Too High
This points out the need for clarity in your paperwork when you file for a SEPP, and thatsome due diligence on the participant”s part to make sure it is working as requested. Here is an example (using the SEPP form on this web site) of what I filed last year to start my plan. I altered the actual amounts, but they show the section with the detail that was provided.
Calculated Annual Payment: Amount: $50,000.00
Payments to be made as follows:
Two equal payments per year, with each one for $25,000.00less
15% Federal Tax, and less 5% Mass State Tax withholding.

First payment of each year to be made in March (starting in 2006),
and second payment to be made six months later.There will be 11 equal semi annual payments made, with final SEPP payment made in March 2011. Checks to be sent to my homeaddress.
____________
I can assure you that I checked that first payment,and I found out that they could not take out State Tax in 2006. (They gave me the $25k less 15% Fed tax withholding.) From that I did qtrly MASS estimates, and starting in 2007, when they are able to take out Mass state tax,I will be checking again to make sure the payment I receive and the two tax withholdings they take add up to a $25K gross (as in the example) when I get my 3/30/2007 payment.If I had received the entire $25,000 (in this example) in any of my payments, I would have first checked to see if no taxes were taken out, and if there were taxes taken out and I still got $25K, I would have called the custodian so they could fix this before the first year ended. How can a person doing a 72(t) and expecting $1000 per month less taxes not notice that they got the whole $1000 each month and taxes were also being paid–each month for three years??

This post is just my attempt at advice forthose that have not done their plan yet, or have just started one recently. You do have to take some responsibility to watch what is happening with your disbursements vs. your requested plan. Sorry, but I have no advice on the problem that has occurred. Good luck. KEN2007-03-21 14:54, By: Ken, IP: [151.199.54.57]