1 Credits: Taxes
One of the challenges faced by advisors is to help their clients minimize income tax on their retirement savings. This includes avoiding the 10% additional tax (early distribution penalty) penalty when possible.
According to a 2019 GAO report:
- “…individuals in their prime working years (ages 25 to 55) removed at least $69 billion (+/- $3.5 billion) of their retirement savings early”
- “IRA withdrawals were the largest source of early withdrawals of retirement savings, accounting for an estimated $39.5 billion of the total $68.7 billion…”
Distributions taken by these individuals are subject to a 10% early distribution penalty unless they qualify for an exception. One of the exceptions is distributions taken under a substantially equal periodic Payment (SEPP) program, commonly referred to as a SEPP/72(t) payment because they are governed by Internal Revenue Code Section 72(t).
The rules for 72(t) programs have been updated under IRS Notice 2022-6, which is effective for any 72(t) payments commencing on or after January 1, 2023 and may be used for 72(t) payments commencing in 2022.
While a 72(t) program can help the owner of an IRA or employer-plan account avoid the 10% early distribution penalty, only ‘suitable’ individuals should enter such an arrangement.
To help advisors determine which clients are suitable candidates, and the rules that apply to those who use the program, this program covers topics including:
- Key factors for determining if an individual is a good candidate for a 72(t)payment program,
- Strategies for calculating 72(t) payment amounts,
- How to avoid transactions that could result in a modification,
- The exception that allows switching of the 72(t) calculation method, and
- The exception that allows a 72(t)-payment program to be discontinued.
Upon completion of this course, participants will be able to:
- When the 10% early distribution penalty applies to distributions;
- How to identify suitable candidates for the 72(t)-payment program; and
- The compliance requirements for a 72(t)-payment program.
January 12, 2023
IRS Provider Number: 0MYXB
IRS Course Number: 0MYXB-T-02311-23-O
IRS Federal Tax Law Credits: 1
CTEC Course Number: 2071-CE-1880
CTEC Federal Tax Law Credits: 1
CFP Notice: Not all courses that qualify for CFP® credit are registered by Western CPE. If a course does not have a CFP registration number in the compliance section, the continuing education will need to be individually reported with the CFP Board. For more information on the reporting process, required documentation, processing fee, etc., contact the CFP Board. CFP Professionals must take each course in it’s entirety, the CFP Board DOES NOT accept partial credits for courses.
CTEC Notice: California Tax Education Council DOES NOT allow partial credit, course must be taken in entirety. Western CPE has been approved by the California Tax Education Council to offer continuing education courses that count as credit towards the annual “continuing education” requirement imposed by the State of California for CTEC Registered Tax Preparers. A listing of additional requirements to register as a tax preparer may be obtained by contacting CTEC at P.O. Box 2890, Sacramento, CA, 95812-2890, by phone toll-free at (877) 850-2832, or on the Internet at www.ctec.org.
Meet The Experts
Denise Appleby is CEO of Appleby Retirement Consulting Inc., a firm that provides IRA technical consultation, training and resources for financial, tax and legal professionals. Her primary focus is protecting retirement savings from costly mistakes. She has over 20 years of experience in the retirement plans field. Denise writes and publishes booklets and marketing tools for advisors. She has provided training to thousands of advisors about the rules and regulations, as well as compliance and operational requirements that apply to IRAs and retirement plans for small businesses. Denise co-authors books that include The Roth IRA Answer Book, The SEP, SIMPLE, …