72(t) modification
client inadvertently (honest mistake) “trustee transferred” his IRA (this being the 72(t) account) to another IRA held with a different custodian. He has since been told both the transfer and co-mingling of assets are modifications – in essence ending the 72(t) and subjecting him to the 10% penalty – retroactively
question
What if any correction methods are available?
Thank you
Permalink Submitted by Alan - IRA critic on Wed, 2017-03-22 21:06
If the other IRA was not a part of the 72t plan and was not considered in the total IRA balance when the original calcs were made, the plan is busted and cannot be recovered. All that is left is to report the retroactive penalties on Form 5329 for the year this transfer was done. Older returns should not be amended. The IRS may or may not choose to bill late interest on the late penalty payment. Reporting does not require a form other than the 5329 and an explanatory statement. Note that the 72t penalty waiver is lost, but it is possible that client qualifies for a different penalty exception for one of more of these years and can still claim the other exception (such as higher education or very high medical expenses, or first home purchase).