Withdrawal error on 72t
L1: Withdrawal error on 72t72t SEPP plan was instituted in 2005 at age 57. I am now 60. I have been receiving the SEPP payments on a monthly basis. I had set up two separate accountsso that I had an “emergency fund” if I needed extra cash.
In April, 2008, I made a withdrawal from the wrong account, using the 72t SEPP account. Discovering this when I did not receive my May SEPP payment, I called and the lightbulb went on that I had goofed and withdrawn the money from the wrong account. I immediately called the broker to see if this could be corrected by transferring the funds from the non SEPP account. They said no, I could not transfer from the other account to correct the error. Unfortunately, the amount I withdrew and the May SEPPpaymentthrew me over my SEPP entitlement for this yearby a few thousand dollars.
After much discussion, the broker wants me to return the amount to them (whichhopefully corrects the problem)as I am still within the 60 day time period and they will then code the erroneous withdrawalas a rollover and I will have to file the necessary forms at year end with my tax return.. They will restart payments for June so my stream of payments continueson time. I am hoping this works out as I obviously want to avoid the huge penalties involved with breaking the 72t.Any comments will be greatly appreciated.
2008-05-22 11:46, By: mgd, IP: [184.108.40.206]
L2: Withdrawal error on 72tThe broker”s suggestion is the standard response, and is correct. If you have spent/used most of this withdrawal, and cannot, or would prefer not to, repay it all, then you could just repay the amount in excess of your ANNUAL DISTRIBUTION, and stop any other withdrawals until next year. There is no requirement that SEPP 72-T withdrawals be identical for each payment, but only that they do not exceed the annual amount.2008-05-22 11:58, By: dlzallestaxes, IP: [220.127.116.11]
L2: Withdrawal error on 72tYes, the rollover will correct the problem, but you must be very careful for two reasons:1) You will have used up your one permitted rollover for the SEPP account per 12 month rolling period and will not have that safety valve available for 12 more months. Hopefully, you did not do one in the prior 12 months either or there is a problem.2) Note that a rollover relates to the distributed amount, not to some consolidated deposit back to the IRA. Let”s say your SEPP distributed 3,000 and also 12,000 by accident and then you suspended one month of regular distributions. You need to rollback 9,000 to get back on track. Be sure to tell the IRA custodian that you are rolling back the 9,000 out of the 12,000, not the 3,000 and another 6,000. That would be two rollovers. The IRS would not know this under ordinary custodian 1099R reporting, and would only discover it upon an audit. However, some technician in the custodian”s tax Dept may be aware of this and decide to code the second one as a regular contribution rather than a rollover on Form 5498 (which is what they are supposed to do since a failed rollover becomes a regular contribution to the IRA). That would bust the plan.2008-05-22 16:01, By: Alan S., IP: [18.104.22.168]
L2: Withdrawal error on 72tThat”s why I recommend just repaying the annual excess. Then stop all distributions for the rest of the year, and start distributions again next January.
Since we are near the end of May, be careful that you stop the June distribution before you repay the present excess, just in case they do not process your stop order in time to stop the June distribution, especially if it”s in early June. Then make the appropriate repayment.2008-05-22 17:27, By: dlzallestaxes, IP: [22.214.171.124]