Disqualified a 72T?
A client has a 72T set up to take $30,500 per year. Last year they only took $30,000 and did not take the $500 for unknown reasons. This was brought to their attention and we suggested they speak to a tax advisor. The tax advisor says the amount not taken is not enough to consider this disqualified. Is there a guideline to know how much has to not be taken in a given year for it to be considered disqualified? Is it based on a percentage that should be taken out?
Permalink Submitted by Alan Spross on Wed, 2009-07-29 22:05
There is no flexibility to the amount that must be distributed, except dollars and cents rounding amounts, so this client has technically busted his SEPP plan.
That said, the IRS has allowed some exceptions, referred to as “error correction” exceptions, when the error is due to a custodian’s error or other situation beyond the control of the taxpayer. In these cases, the taxpayer must do everything he could reasonably have been expected to do, but the annual distribution was incorrect due to unforeseen circumstances. I don’t know if this situation even approaches something like that, and a letter ruling request costs around $9,000 plus legal fees. Therefore, the number of years into this plan is also a consideration in whether to pursue a letter ruling.