72t/SEPP Suspension
Client is 57 with an established 72(t) for the last 3 years. Due to certain circumstances, very likely will bust his 72(t) in the next month. He plans to bust 72t, pay the 10% excise on what’s been taken thus far. He will then take a lump sum distribution (in the same tax year). He wants to use SOME of the distribution for qualified HE expenses for his daughter to at least avoid the 10% excise on this amount and the rest will go toward paying off a business loan.
Is this possible with all other elements going on? Is it really a matter of documenting and filing appropriate tax forms in April 2017?
Permalink Submitted by Alan - IRA critic on Thu, 2017-08-17 23:07
Yes, this can be done. A 5329 would be filed with the 2017 return and include the retroactive penalty amount that is due since the plan began. However, the penalty can be reduced by qualified HE expenses paid this year. An explanatory statement breaking down the penalty amount paid for each year and the HE penalty exception for this year should be included. The IRS may or may not bill late interest on the penalty now due up through 2016.