Violating distributions

L1: Violating distributionsBadger,
I fully understand how the rules of 72T work but one question is confusing me that I hope you can help me out with.
If someone starts 72T and violates the plan by taking an additional distibution, they are considered tobe no longer on 72T because they busted the plan. If they just keep taking that same income payments from that account, they will pay penaltiesuntil 591/2.
How do you restart the plan to avoid those penalties?
1. Recalculate that account at RMD?
2. Can you just stop the payments on that account, recalc @ annuitization, and start again?
3. Or, move the money out of the account totally, put it in a new contract, then start 72T @ annuitization method.
Your insight would be much appreciated.
2004-03-12 09:25, By: emerald, IP: [151.204.26.19]

L2: Violating distributionsWhat you are really asking is more of an administrative question than anything else & as usual the IRS gives us little in the way of administrative guidance. As a result, we need to deal with the issue logically (LOL).
Pick a date, preferably a month-end or quarter-end; document the end of SEPP plan #1 (knowing full well that the taxpayer willneed to paythe 10% penalty and interest onALL distributions-to-date); document a new plan picking any method you like; document the new plan; commence distributions under the new plan the following month.
TheBadger
wjstecker@wispertel.
P.S. This is a situation were very careful & very thorough documentation is needed. Additionally, it is a goodplace to seek professional advise & an opinion letter.
2004-03-12 09:57, By: TheBadger, IP: [38.116.134.130]

L2: Violating distributionsI just checked with the custodian I use for my client SEPP plans and posed your scenario to them to see how they would handle it administratively. Their response was to move the assets from the ‘Busted’ plan into a new account and then start a new SEPP distribution based on new information, i.e., current blanance, interest rate, age etc. This makes good sense as you can better track the actions for recreating your ‘paper trail’ of events.
Suggest that you check with your IRA custodian to see how they handle it.
Jim2004-03-12 11:15, By: Jim, IP: [68.1.147.61]

L2: Violating distributionsMoving the assets out of account A into account B coincident with the termination of the existing SEPP plan is not, in my opinion necessary, however, I can also see some perceived as well as documentary benefits.
TheBadger
wjstecker@wispertel.net
2004-03-12 11:24, By: TheBadger, IP: [38.116.134.130]

L2: Violating distributionsI agree that it might not be ‘necessary’ to change from account A to B, butcustodian policy is probably the controlling factor. And if the custodian is not going to charge a ‘close-out’ and ‘establishment’ fee for making the move from A to B, then you have won half of the battle. Fortunately all of my SEPPs are working fine since I set up a separate IRA for emergencies instead of having to’Bust’ a SEPP.
Jim2004-03-12 11:32, By: Jim, IP: [68.1.147.61]

L2: Violating distributionsThank you for your responses. The only problem I face with moving the account is that there is a large surrender on the account. Before the laws changed, I would usually have seperate accounts…now because of the low interest rates, they need to 72T the whole account.
Thanks agains for your help,
Emerald2004-03-24 08:59, By: emerald, IP: [151.204.10.248]

L2: Violating distributionsI suspect you are invested in either a fixed or variable annuity, or ‘B’ share mutual fundswhen you say ‘ …there is a large surrender on the account.’ If this is the case, talk with the annuity company about ‘working with you’ to get assets moved into another account with them so you can get this cleaned up. If you have ‘B’ share mutual funds, it should not be such a problem of setting up new accounts within the same family of funds. You will keep the same CDSC schedule and virtually go on as if nothing happened. If the annuity company won’t cooperate … and they may have some legitimate reasons due to state insurance laws but they can usually findways around the problem… then evaluate your costs for pulling out of that investment. Then if you are going to use a Variable annuity, look for one with NO SURRENDER CHARGE at all, and there are plenty. Don’t know of any fixed annuities without surrender charges.
Jim2004-03-25 09:35, By: Jim, IP: [68.1.147.61]