Discussion:Avoiding 10% Pre-Matrue Penalty on NQ Annuity Distribution
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Discussion Forum Index --> Advanced Tax Questions --> Avoiding 10% Pre-Matrue Penalty on NQ Annuity Distribution
Discussion Forum Index --> Tax Questions --> Avoiding 10% Pre-Matrue Penalty on NQ Annuity Distribution
| 13 March 2008 | |
| I have an investment client, age 59 in 2007 that retiried. He took an early distribution of $21,298 from his non-qualified annuity to supplement income, assuming he could do so and avoid the 10% penalty by taking at least substantially equal payments over 5 years. Insur. Co. coded the withdrawal as a "1" on his 1099R - a premature distribution from NQ annuity, subjecting him to the 10% IRS penalty. His first withdrawal amount was all interest and taxable.....which he knew going in. 2008 withdrawal would be coded "7" as he would be over 59 1/2. Current value of annuity is $191,000. Cost basis is $142,692. Initial research seems to indicate he might be able to avoid the 10% penalty with a 72Q, however the insurance company that issued his annuity won't set this up for any non-qualified program......they only do 72T. His tax preparer said he is unfamiliar with 72Q. Is he able to avoid the 10% penalty, pay the tax on the distribution using 72Q under a 5 year equal payment program for non-qualified assets? If so, this may also help him on his MI state tax that does not tax retirement income received as substantially equal payments. | |
| 13 March 2008 | |
| the SEPP must be calculated (using one of the approved methods) over his life expectancy, not just over 5 years, so he would probably have only been able to get around $8,000 to $12,000 (based on approp int rate and factor) out penalty free from this amount. By taking twice that amount out, he blew it.
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| 13 March 2008 | |
| No Kevin, I'm quite familiar with IRS treatment and calculations regarding qualified assets, but not for non-qualified. I will pass this information along to him and suggest he sit down with a tax preparer who can do the calculations. Thank You for your helpful reply. | |
| 13 March 2008 | |
| Internal Revenue Code:Sec. 72. Annuities; certain proceeds of endowment and life insurance contracts | |
| 9 April 2008 | |
| Does the Sec 213 medical expense exception also apply to early distributions from NQ annuities? IRC 72(q)(2)(H) makes a reference to 72(t) but my little brain does not understand the reference.
IRC 72(q)(2)(H) "to which subsection (t) applies (without regard to paragraph (2) thereof)" What does that mean "without regard to paragraph (2) thereof"? The Sec 213 exception is under paragraph 2 of IRC 72(t). No comprendo muy bien. | |
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