72T set up error in first year
Hi – I just realized that I made an error in the initial set-up of my 72T/Sepp plan. I calculated the annual distributions off of a balance that was $5,000 lower than it should have been. (798,566.37 instead of 803,566.37) Should I report the mistake now to avoid future penalties? I am just ending the first year of a five year plan. Thank you in advance for your counsel.
Permalink Submitted by Alan - IRA critic on Mon, 2018-12-31 20:08
You had discretion in selecting the balance for your plan. You do not have to use the balance on a certain date. You could go back up to 6 months to find a month end statement showing a balance that was slightly higher than 798,566. However, you cannot go back farther than your most recent transfer in or out of the IRA so if you did a 401k rollover and started your plan right away, you cannot go back before the date of the 401k rollover. Then tweak your interest rate slightly lower than the one you used as you can carry the interest rate out as many decimal places as you need. Then update your plan documentation accordingly by making a copy of the statement you used and the new calculation. Since your distributed amount difference is small and results in only about $240 less than using the 5,000 higher balance, these small calculation adjustments should bring your distribution amount into compliance and save you the penalty and interest of a busted plan. Any problems, please advise.