Starting 72(t)

L1: Starting 72(t)Can a 72(t) plan be started “retroactively”?
Here”s my dilemma……. I am 55 years old. During CY 2006 I had $31,000 in distributions from my IRA (approx. $12,000of which was used to pay college tuition for my daughter). The rest of the distribution was dividends from my IRA that, prior to last year,hadbeen reinvested. Problem is that no federal or state withholding or 10% early withdrawal penalty was withheld, and now, in combination with other issues, I owe $4,400 in taxes to the Feds.
Question is….. can I file a 5329 with my 2006 federal tax return, claim that the $31,000 received last year was a 72(t) to save the 10% penalty, then, actually take 4 more annual payments to equal the amount I received in 2006 to actually establish a SEPP?2007-04-04 08:35, By: JohnS, IP: [69.202.27.135]

L2: Starting 72(t)No it can”t be started retroactively – at least not legally.
You can claim anything, but you”ll probably end up having more IRS/Taxproblems then you really want.Best bet – pay what you owe and start planning for next year now.. 2007-04-04 08:45, By: Gfw, IP: [74.136.109.63]

L2: Starting 72(t)Thanks, Gordon…that”s what I thought. I have no intention of doing anything shady or trying to fool the IRS. I”ve never been audited and don”t plan to start now.
I”ve already “planned for next year….” as you suggest by stopping the distribution of the dividends that caused the bulk of the problem to begin with. I should have caught this last year but I guess I wasn”t paying close enough attention. As they say, sometimes we have to learn lessons the hard way!
John2007-04-04 11:59, By: JohnS, IP: [69.202.27.135]

L2: Starting 72(t)JohnS:
I agree with Gfw”s reply. I started a SEPP in 2005. I completed the necessary 401k plan rollover and all of the paperwork that involved and then filled out a custodial SEPP account form. Using the custodian”s SEPP information brochure, I selected one of the 3 calculations approved by the IRS, plugged in all of my numbers, and got a SEPP distribution amount. To double check this number, I used the SEPP calculator on this web site. Both amounts agreed to within about $0.50, which is likely due to the number of digits used plus rounding errors in the calculations. Simply saying that you have a SEPP is not sufficient. You have to set up the account and do the calculations required so that the SEPP is created in an IRS-approved manner. It”s not difficult but it takes some time and attention to detail. Once all this has been done, a very nice paper trail is also created that documents what you are doing and puts it into practice. After that, all that is needed is for the SEPP owner to watch the payments to make sure that the amount received is the same as was calculated, that all payments are received on time, and that there are no monetary additionsor subtractions from the SEPP account other than the calculated SEPP payment amounts. Most IRA custodians handle this pretty well but it never hurts to verify that all is well as you go along.
Ed2007-04-04 15:06, By: Ed_B, IP: [67.170.159.37]

L2: Starting 72(t)Thanks for the info, Ed. I was already pretty well versed on the steps required to actually set up a SEPP. I really just wondered if you were allowed to actually set-up the SEPP after distributions had already started. I never really planned to actually start the SEPP back in 2006 when I took those distributions, but as I was doing my taxes last week I wondered if I could save the 10% penalty by starting the SEPP now, and include the 5329 with my 2006 1040 form. I have plenty of money in my IRA to split out a portion, use one of the three calculation methods, and adjust the interest rate to make it come out with the actual amount distributed from my IRA last year.
Being that I don”t really need the money for the next 4 years, which is what starting a SEPP now would force me to do, I”m sure I will be money ahead by following Gordon”s suggested approach of just biting the bullet and paying Uncle Sam ( as much as I hate to do that ! )
Thanks.2007-04-05 06:55, By: JohnS, IP: [69.202.27.135]