72(t) mistake
How do I go about correcting four years of mistakes on my tax returns with the IRS? I now realize that I have been taking the incorrect amount out of my IRA due to a total misunderstanding of the 72(t) rules for avoiding the 10% early withdrawal penalty. Is it best to find a financial advisor to help me through the process? What do you suggest?
Permalink Submitted by Alan Spross on Tue, 2010-07-06 18:02
Basically, if your plan was incorrect from the start, you would report the retroactive penalties on Form 5329 for the current year, pay the 10% penalty and also wait until the IRS bills back interest. However, there may be flexibility this year to start a new plan and avoid the penalty for 2010. If that works out, you would report the busted plan on your amended 2009 tax return. The 5329 must include a statement breaking down the distributions for each year of the plan and for which the penalty will apply.
Finding a tax pro who is fully up to speed on SEPP plans is difficult, because most of the rules just evolved with years of IRS letter rulings. The IRS itself is inconsistent in handling these plans. If you have more detail, please post here or on the following site dedicated to 72t plans:
http://www.72t.net/72t/Forum
If you qualify for different exceptions for the penalty other than equal payments, these other exceptions may cover some of your penalty. For that you would have to amend the prior year returns that can still be amended.
Permalink Submitted by Marc DeRose on Tue, 2010-07-06 19:01
Thanks alan-oniras for the response. I appreciate the information!