72(q) Substantially Equal Periodic Payment for a non-qualified annuity
A 46 year old had a 72(q) SEPP plan since 2008 for her non-qualified annuity. She withdrew the entire annuity balance of $56,000 in June 2020 due to losing her job due to pandemic. Will she qualify for an exemption to the 10% penalty and 10% retroactive application under the CARES Act?
Permalink Submitted by Alan - IRA critic on Tue, 2020-08-25 14:40
While 72q SEPP distributions follow most of the 72t rules, the exception granted by Notice 2020-50 for CRDs does not apply to NQ annuities, because these accounts are not “eligible retirement plans” and therefore cannot fund a CRD. Unfortunately, this distribution will bust the 72q plan and trigger the retroactive penalty and interest. Perhaps she will be able to apply other penalty exceptions for the last 3 years and current year that will offset some portion of these retroactive penalties.