SEPP error in distribution amount
L1: SEPP error in distribution amountNew SEPP for 2014
First date of Distribution: 1/2/2014
When filling out the paperwork I was incorrectly advised by Fidelity to fill in an expected rate of return (10%)in a box on the form instead of inputting the IRS maximum interest rate number (currently 2.07%). As a result I received alarger distribution than I was expecting. Fidelity says they can correct the error but my question is can I decided to accept the larger amount (as an annual distribution for the minimum 5 years as required by the IRS) without incurring the 10% tax penalty?
2014-01-07 18:51, By: putter4459, IP: [126.96.36.199]
L2: SEPP error in distribution amountVery short answer… NO!
And, based on your question are you sure that you have a 5-Year plan? To me it sounds like you iomplemented your SEPP before you did any reading and without any help.2014-01-07 18:59, By: Gfw, IP: [188.8.131.52]
L3: SEPP error in distribution amountKill the distribution now with the custodian, and pay the penalty for January payment,on 2014 tax return, and maybe convince Fidelity to cover the 10% penalty if they really messed up. (I do find that hard to believe.) Then start again later, after getting some idea how this all works. This site is a good starting point.2014-01-07 23:07, By: Ken, IP: [184.108.40.206]
L4: SEPP error in distribution amountUse of an interest rate higher than the 120% midterm is not permitted, so this raises some questions about Fidelity’s handing of 72t plans. We already know that they assume a beginning of the year distribution rather than an end of year and that causes a small difference with other 72t calculators including the one on this site.
As for the large distribution, the excess of what is the correct distribution can be rolled back into the IRA if there has not been a prior rollover in the past 12 months (only one is allowed in a 12 month period). A 72t distribution cannot be rolled over, but amounts in excess of the proper distribution can be. If the larger distribution still falls short of the annual amount, then just keep it and reduce the remainder of the distributions so that the annual total is correct.
2014-01-08 00:28, By: Alan S, IP: [220.127.116.11]
L5: SEPP error in distribution amountPlease give us the details of your situation
amount of first distribution
balance for your SEPP 72-T calculation
annual distribution calculated on their site and our site2014-01-08 03:34, By: dlzallestaxes, IP: [18.104.22.168]
L5: “this raises some questions about Fidelity’s handing of 72t plans” – YESAs I just posted under the “amortization calculation” question in a different post, Fidelity is especially evil in NOT providing assistance where they clearly and easily can, and even should.
Fidelity should have blocked the distribution as soon as its computers encountered a value of 10% in the interest rate variable. It’s obvious from IRS guidance that the allowable range of interest rates is anywhere from 0% up to the greater of the 120% etc … for the past two months. This is what computers are for – automating obvious processes!
Fidelity’s cumbersome application form and inconsistent customer service make it dangerous to rely on them. I feel safer relying on information at this website, since (1) all of it is footnoted or explicitly cited from IRS sources, and (2) the information aggregated here is from perhaps hundreds of individual experiences. Finally, if you’re as obsessive as I am, (3) you can “tie out” between the calculator here and the IRS test case.
Read my other post if you still feel you need to go with Fidelity. The ONLY reason I can see is if you’re concerned that you might forget to take out the appropriate amount on the exact required day. (Which is still a little in debate when it’s a holiday – the day before or the day after?)
(Off the topic, but to avoid leaving that question hanging: I’d go with the day after. My experience with financial contracts shows that “if the[required date] is not a business day, then the next following business day” is almost ubiquitous. But OTOH, my experience with others’ Social Security and federal pensions is that they are paid on the previous business day. So I think there are precedents either way.
I saw a question in this forum that asked whether taking it a day early creates a “short period.” I think that concern is misguided, because by the same line of reasoning, taking it the day after could create a short period the following year on the original anniversary. The alternative in that case would in effect create a new anniversary date equal to the original anniversary date plus one day, which is inconsistent with how annuities are paid.)
2014-01-13 17:25, By: ejb, IP: [22.214.171.124]