SEPP Violation Question

L1: SEPP Violation QuestionI have a situation similar to the last post. I established a 72T in April, 2004 and withdrew $5,000. In March, 2005 I withdrew $16,000 without knowing I would void the 72T and have to pay additional penalty. My advisor didn’t tell me about this until 3 weeks after the withdrawal when shenoticed I was scheduled for a 72T withdrawal. At the time, she first told me I COULD repay the money and not have to pay the penalty, then two days later told me I COULDN’T. According to other answers I’ve seen on your website, I now believe I COULDhave returned this money. Am I correct in assuming this? Can you point me to where I could find this rule spelled out in writing?2005-07-08 11:36, By: maddie, IP: [24.229.155.137]
L2: SEPP Violation QuestionHello maddie:
Yes you could have returned the funds within 60 days using the rollover rule (IRC408(d)(3)); however, now that more than 60 days have passed you have two choices:
1. You have a busted SEPP plan. Therefore pay the 10% surtax on the $5k and the $16k.
2. Apply for an exception under Rev. Proc. 2003-16.
TheBadger
wjstecker@wispertel.net
2005-07-08 12:53, By: TheBadger, IP: [66.250.23.21]

L2: SEPP Violation QuestionAlso, you may want to get another “advisor” or, at least, don’t rely on this individual for tax advice.
2005-07-14 08:05, By: GrT, IP: [24.145.164.87]

L2: SEPP Violation QuestionI’m still trying to argue my point w/my financial institution that they gave me incorrect information by saying I COULD NOT return the money within the 60 day time frame. I’m saying that if I could have, I would have and, therefore, not be responsible for the 10% penalty. They are denying my claim by saying the return clause does not apply to a 72T and that IRC code 408 (d) (3) does not apply in this situation. Any other advice?2005-08-03 11:47, By: maddie, IP: [24.229.155.137]

L2: SEPP Violation QuestionHi Maddie:
At this point I have a three-element suggestion:
1. Quickly get with a qualified CPA who understands your situation and settle the busted SEPP with the IRS. You need to stop the interest and penalty clock which is only costing you money.
2. Find another FA with another firm who understands 72(t) and is very familiar with this site. You’ll probably have to look for an independent FA with a smaller Broker / Dealer firm and not a large, national operation.
3. Find a tax attorney who might be able to help you get some restitution from the previous FA and her firm. Take into account the costs for this element vs your losses for the IRS penalties and interest to see if it’s worth pursuing.
Good luck.
Jim2005-08-03 13:10, By: Jim, IP: [70.184.1.35]

L2: SEPP Violation Questionmattie-good advice from jim. Have had clients in your situation where the 10% penalty is not large because they’ve only been in 72t a short while. What you can do is stop NOW as jim suggests and then start a new 72t from the same account; so you can deal with this quickly and not lose any ormany monthly paymants. In some cases, clients have been able to draw more because the account is worth more, interest rates have risen, and they’ve got to be older. So all is not lost-get out quick and start over and I suggest you forget about trying to get the folks who gave bad advice to be responsible for any of your loss. My experience is it’s not likely to happen and not worth the effort unless the losses are huge.2005-08-03 17:46, By: john, IP: [68.187.171.50]

L2: SEPP Violation QuestionThey have already admitted responsibility for not telling me I would bust the 72T if I took an additional withdrawal and have agreed to pay me the 10% penalty that I’ll have to pay next year. I’m now seeking 10% of the $16,000 and, although they won’t tell me where it says I can’t return the money, they want me to tell them where the code says I can. That’s the information I’m seeking now. Is there somewhere where it’s clearly stated that you can return money to a 72T and avoid the 10% penalty. I’m fortunate that this occurred after only one withdrawal so the penalty won’t be too bad.2005-08-03 21:26, By: maddie, IP: [24.229.155.137]