Underwithdrawal of Annual SEPP amount
L1: Underwithdrawal of Annual SEPP amountI started withdrawing $8,000 per year from my IRA approximately 4 years ago. I will be 59 1/2 this year so I need to continue my schedule for an additional year to meet the 5 year requirement. I recently discovered that I only took $4,000 in 2011, can this error be corrected? Are there any private letter rulings that discuss this type of erro and corrective actions that can be taken2012-03-15 17:37, By: Retire1, IP: [22.214.171.124]
L2: Underwithdrawal of Annual SEPP amountYou don’t really state a reason as to why you missed taking the proper amount. There are a few PLRs that deal with administrative errors by teh custodian/trustee, but none that I have seen for the IRA owner not taking the full annual distribution.
You might be between a rock and a hard place – to file for a PLR could cost more than the 10% penalty (10% * 8000 * 4) and if turned down you would incur the cost of the PLR and the 10% penalty.2012-03-15 18:11, By: Gfw, IP: [126.96.36.199]
L3: Underwithdrawal of Annual SEPP amountI think that you have nothing to lose by taking the extra $ 4,000 now, and reporting it as if it had been withdrawn in 2011 on the tax return.
Obviouslythe amount that you report on your tax return ( $ 8,000) will be higher than the amount on the 1099-R ( $ 4,000) which was the actual withdrawal. I would report $ 8,000 received and $ 8,000 taxable.I would attach a note of explanation to your 2011 tax return, and a copy of the documentation of the additional distribution (which IRS probably will not read). If you report $ 4,000 received and $ 8,000 the IRS computers will go crazy because they won’t know how to handle $ 4,000 received but $ 8,000 taxable when they process the 1040. I doubt that they will blink if they find the 1040 reporting $ 4,000 more income than on the 1099-R.
Next year for 2012, the 1099-R will show $ 12,000. I would then show $12,000 received and $ 8,000 taxable on the 1040. Attach another letter of explanation and documentation, plus a copy of page 1 of the 2011 1040.
You’ll probably never hear from the IRS.2012-03-15 18:31, By: dlzallestaxes, IP: [188.8.131.52]
L4: Underwithdrawal of Annual SEPP amountI don’t know if I would be that optimistic about not hearing from the IRS pursuant to inflating your 2012 distribution, and you won’t really know the result until after you file for 2012 and report less than the 2012 1099R indicates.
So, your plan could well be busted eventually. To reduce your potential loss, I would take out my 2012 distribution AFTER reaching 59.5 so you will avoid the penalty for 2012 should the IRS bust your plan, particularly if you take out 4,000 more than your plan amount. Your 2012 1099R should then have code 7 on it.2012-03-16 23:02, By: Alan S, IP: [184.108.40.206]