Section 72(t) question

[tmike]

I had someone ask me to look at their 2007 return which was already filed. To make a long story short, he retired from his company at age 56 and had a pension and a 401(k) with about $500,000 in them. His plan was to use $150,000 to pay down some debt and use the remaining $350k for retirement income. Under section 72(t) he could withdraw the $150k and not be penalizes because he was over 55 and separated from service. The problem is his fin'l advisor had him do a direct rollover into an IRA. About 2 weeks later he withdrew the 150k thinking there would be no penalty. Under sec 72(t) IRA distributions do not qualify for an exeption to the penalty. Is there anything I am missing? Is there any work around that anyone is aware of? I think the financial advisor could be liable, but that is another issue. Any help would be appreciated. -Mike-

[JohnH]

You may get all the info you need right here on our forum, but if you want to expand your search for info you might want to try this forum - I've found the advice given there to be solid and reliable.

http://72t.net/Discussion/ViewPosts.aspx

[joanmcq]

Ouch. did he tell his financial planner of the plan to withdraw 150K? Hopefully in writing? If not, I don't see how you can blame the planner in begging for a penalty abatement. Were the funds rolled back in when he learned of the mistake? If not, I don't see how you can request abatement. He may have recourse against the planner...

[kcjenkins]

He may have recourse against the planner... unless in fact he did not do quite what he was advised to do. We all know how often clients ask us how to do something, and we tell them to do A, B and then C. And the client goes out and does A and C, but not B, or he does A, C, then B, etc. And then is mad at us when we tell him he screwed up.

Sadly, I doubt that there is anything he can do, unless in fact the planner did do the screwup. And if so, I hope he has it in writing. Memory of what he was told verbally is not going to do it.