72t modification
I have a client who has recieved $26,638.98 year to date in 72t distribution payments. If we make a change to the RMD method I calculate his annual distribution to be $23,569.08. We are in the 2nd year of 5 year period. Does the IRS require that a 10% penalty be paid on the excess of $26,638.98-$23,569.08=$3,069.90×10%=$306.99 penalty? Is there any way to avoid this penalty other than continuing the higher monthly payments until Jan?
Permalink Submitted by Alan Spross on Tue, 2008-07-15 01:22
Has there been a single distribution of at least 3,070 in that last 60 days that could be rolled back into the IRA? That’s the only way, other than possibly seeking a PLR to make the RMD change mid year.
Permalink Submitted by Al Fry on Tue, 2008-07-15 02:49
I thoght there was a change that now allows a midyear switch, even if total for year exceeds the RMD method amount.
Permalink Submitted by Alan Spross on Tue, 2008-07-15 03:42
Al,
I am not aware of any rulings approving a mid year switch, even though Bill Stecker (72t on the net) feels that there is a good chance the IRS would rule favorably on a bi furcated year (eg first 6 months @ amortization calc and last 6 months on RMD calc). But these PLRs are now very expensive to pursue. In addition, as of the date of change, the distributions would have to be correct to the month or correctible by rollover to the month.
The PLR that confirmed the rollover to switch to RMD was PLR 2004 19031 summarized here:
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2004-19031 (February 11, 2004)
Taxpayer had an existing SEPP plan which commenced in 1999; for example purposes requiring the distribution of $60,000 per annum. In early 2002, taxpayer distributed $45,000. Then, in October, 2002, Revenue Ruling 2002-62 was issued permitting the method change to the RMD method. In this case, the taxpayer’s RMD distribution for 2002 would have been $25,000 and the taxpayer had already distributed $45,000 earlier in the year. Being uncertain if or how to retroactively implement a switch to the RMD method in 2002, the taxpayer proceeded to complete the required amortization method distribution of $15,000 in December, 2002. In January, 2003, the taxpayer re-deposited $35,000 & then filed for this ruling.
The IRS granted relief to this taxpayer under IRC §408(d)(3)(I) wherein the IRS now has the authority to waive the 60-day rollover rule as normally imposed by IRC §408(d)(3)(A), effectively making 2002 look like an RMD distribution year.
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It is assumed that in the normal situation following 2002-62, the 60 day rollover rule would apply without the extra time the IRS allowed in the PLR.
Ed Slott’s year end 2006 newsletter still maintained that the RMD method is inherently a CY method. If you find anything more recent that changes this, please post.