72T distribution, closing the account
We have a client who is 3 yrs into a 72t withdrawal from their IRA. The client is considering liquidating the account. Would a full liquidation of the IRA trigger the 10% penalty on the prior distributions since 72T has not been in place for 5 years?
Permalink Submitted by Alan - IRA critic on Mon, 2013-02-25 21:28
Definitely, unless the value of the IRA(s) used for the plan dropped below the amount of the annual distribution and that is very unlikely. The busted plan would be reported on Form 5329 for the year the plan is busted and would include all distributions taken under the 72t plan from the start. In addition, the IRS will probably bill late interest charges on the earlier years. It’s possible that the client may qualify for a replacement penalty waiver if he has certain expenses for which the penalty is waived for other reasons. For example (higher education costs, high medical costs, health insurance while unemployed, first home, etc). He would have to file a 1040X with a 5329 for any prior years if a replacement waiver of penalty applies.
Permalink Submitted by Dennis Prout on Mon, 2013-02-25 21:37
That confirms what I was thinking. Thank you!!!