72 T- Fixed Annuitization Method
I had a person call me who has been taking his 72T distribution using Fixed Annuitization Method.
Last year the distribution was actually make incorrectly and paid $ 40 short. His investment broker told him they will handle this years return and correct it on form 5329 and move forward.
In my opinion this is not correct advice and possibly all prior distributions may be subject to the 10% early withdrawal penalty
Please advise
Tom G.
Permalink Submitted by Alan - IRA critic on Tue, 2022-04-12 17:34
The IRS will need to see a 1099R with the correct amount unless they are now lenient enough to consider $40 as close enough. If this was 100% an IRA custodian error, they may be willing to issue a corrected 1099R and distribute the shortfall now. A 5329 is only used to report a busted plan and to pay the retroactive penalty back to day 1, so I assume the person wants to explore all other less expensive options first. What the broker indicated would be done is not clear, so unless this is cleared up immediately, taxpayer should file an extension for the 2021 return. To be clear, if this is 100% custodians error, they should correct the 1099R and distribute the shortfall, and this is the only way they can help except to all taxable consequences of the taxpayer in a separate settlement. Their decision likely depends on what distribution arrangements were outlined in the first place. Other than the above relief, taxpayer could either report as is and see if the IRS has a $40 tolerance or some % tolerance, or report a busted plan using Form 5329 to pay the retroactive penalty. The IRS would then likely bill out late interest for the late penalty payment. The plan would then have ended on 12/31/2021.