Early Withdrawal Penalty

[Mary Kay Foss]

Before the stock market went down an individual started taking substantially equal periodic payments from an IRA of about $200,000 for 2000 and the same amount for 2001. He turns 59.5 next year and the IRA can no longer support the large withdrawals. I understand that he will owe the 10% penalty plus interest on the two payments that he has taken but I have some questions about procedure:

1. The modification to the payments occurs in 2002, by not taking the large payment. Is Form 5329 filed with the 2002 Form 1040?

2. Since Form 5329 is a form that can be filed separately from the Form 1040, can it be filed earlier?

3. What period does the interest cover? My first thought was from April 15, 2001 to April 15, 2003 on the first withdrawal BUT if we can file Form 5329 early the interest term should be shortened.

4. Our state (CA) has a similar penalty but no interest (that I'm aware of). The penalty might as well be included with the 2002 return if there's no interest. Agree?

5. Does anyone have experience with this?

[Guest AFRICA6796]

I heard of a client who was unable to meet his payments for the same reason- his IRA went almost flat. He contacted the IRS and received an exemption through a PLR. I am unable to locate the PLR. The reason given by the IRS was that the modifications to the payments was beyond the individuals’ control. , but it is worth contacting the IRS, especially if the penalty involved is a large sum

[BPickerCPA]

I've heard it's possible that the IRS will issue such a ruling, but if they have, it hasn't yet been published and you have "inside information" (PLRs are published around 3 months after they are issued, so the taxpayer and their atty or CPA know about it before the public does).

I would advise people to try to get such a ruling for their own situation.