![]() ![]() It isn’t recommended that individuals count on this decision to bail them out if they need extra funds. Until we know, for sure, that the IRS will follow this decision in future rulings, the best advice you can give clients is not to modify 72(t) payment plans. The court decision doesn’t mean that the strategy will work from here on in, but it is interesting to know how one court has ruled on this issue. Those are the only three exceptions to the penalty that contain the language allowing the use of more than one exception, including a 72(t) payment plan. Still, the decision to take distributions may give some account owners much-needed flexibility if they need additional funds for higher-education expenses, medical expenses or medical insurance. The consequences of modifying a plan can be severe and ultimately lead to having much less to live on in retirement. This court decision points out some of the pitfalls of these plans, principally that payments can’t be modified for most individuals. Many are setting up 72(t) payment plans, and some are finding that plans they set up in the past no longer meet their needs. The court decision said: “We hold that a distribution that satisfies the statutory exception for higher-education expenses is not a modification of a series of substantially equal periodic payments.”Īmid the tough economy, more retirement plan owners are finding it necessary to tap those funds before retirement. ![]() Each exception will be looked at individually, without regard to other distributions using other exceptions. The court found that the wording in the tax code doesn’t prevent the IRA owner from using more than one 10% penalty exception. Benz and the IRS did not agree on the amount of the additional tax owed, they ended up in Tax Court, which ruled against the IRS and in favor of the couple. It determined that all her distributions for 2004 were subject to the 10% penalty, except for the total paid that year for college expenses - $35,221.50. ![]()
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