Permalink Submitted by Alan Spross on Fri, 2007-08-17 23:03
The cost is generally the retroactive amount of the early withdrawal penalty of 10% that was avoided since inception of the 72t plan. In addition interest is charged based on the length of time elapsed since the original due date of each 10% penalty. This can include several years of quarterly interest rate changes with the average perhaps a little under 6%. The IRS will figure the interest, and I do not know the complete details of their methodology.
In severe cases, there could be a fraudulent return penalty as well, but that is very rare. In states such as CA with their own early withdrawal penalty (2.5%), there would be state return costs as well.
The penalties described above apply to situations where the exact amount is not distributed, so the actual distribution can be less as well as more. There are exceptions such as death and disability, and there is also permitted a one time switch to the RMD method from one of the other two methods. Obviously, the risk of severe costs mount in the later years of longer programs since 10-15 years of penalties are exposed.
Permalink Submitted by Alan Spross on Fri, 2007-08-17 23:03
The cost is generally the retroactive amount of the early withdrawal penalty of 10% that was avoided since inception of the 72t plan. In addition interest is charged based on the length of time elapsed since the original due date of each 10% penalty. This can include several years of quarterly interest rate changes with the average perhaps a little under 6%. The IRS will figure the interest, and I do not know the complete details of their methodology.
In severe cases, there could be a fraudulent return penalty as well, but that is very rare. In states such as CA with their own early withdrawal penalty (2.5%), there would be state return costs as well.
The penalties described above apply to situations where the exact amount is not distributed, so the actual distribution can be less as well as more. There are exceptions such as death and disability, and there is also permitted a one time switch to the RMD method from one of the other two methods. Obviously, the risk of severe costs mount in the later years of longer programs since 10-15 years of penalties are exposed.