When 10% IRS penalty applicable

L1: When 10% IRS penalty applicableAn individual starts a 72t distribution and recieves his first payment at age 58, his second at age 59, his third at age 60, and his fourth at age 61. Shortly after receiving his 4th payment he incurs unexpected expenses and needs to modify his IRA withdrawals. Am I correct in thinking that the 10% penalty applies only to payments 1 and 2, as they were before age 59 1/2 and not to payments 3 and 4.2002-08-21 17:06, By: Chuckie, IP: [127.0.0.1]
L2: When 10% IRS penalty applicableSorry. They will apply to all the payments since the term of the SEPP was a minimum of 5-years. There will also be interest due on the 10% penalty tax.2002-08-21 17:25, By: Gfw, IP: [127.0.0.1]

L2: When 10% IRS penalty applicableSee Pub 575 (2000 edition) page 29, right column @ bottom:”…It (the 10% tax) applies even if you modify your method (or amount) of distribution after you reach age 59 1/2. In that case, the tax applies only to payments distributed before you reach age 59 1/2.”TheBadgerwjstecker@wispertel.net2002-08-21 19:16, By: TheBadger, IP: [127.0.0.1]

L2: When 10% IRS penalty applicableThanks. I stand corrected. In the 2001 version it’s on page 28.2002-08-21 19:39, By: Gfw, IP: [127.0.0.1]

L2: When 10% IRS penalty applicableIf we think about this for a moment, the rule does make logical sense; irrespective of the fact the IRC is under no obligation to be logical. A distribution, post age 59 1/2 is, by definition, exempt from the 10% surtax by reason of IRC 72(t)(2)(A)(i); therefore only the pre-59 1/2 distributions can be penalized.I fund it interesting however, that the IRS has seen fit to publish this in just one sentence in Pub 575 and omits this in it entirety in Pub 590.TheBadgerwjstecker@earthlnk.net2002-08-22 08:23, By: TheBadger, IP: [127.0.0.1]