72t Distributions
Once a 72t is initiated, can it be moved to a different custodian? i.e., 72t started at ABC custodian on 1/1/2007 – can the distribution be stopped today at ABC and moved to XYZ custodian for the duration?
Once a 72t is initiated, can it be moved to a different custodian? i.e., 72t started at ABC custodian on 1/1/2007 – can the distribution be stopped today at ABC and moved to XYZ custodian for the duration?
Permalink Submitted by Alan Spross on Mon, 2008-12-08 21:29
Yes, but I would definitely wait until January to execute any transfer if any payments are still due for 2008. Any error in the transfer process made by either custodian could bust the plan with no time to get it rectified, so December is not a good time to undertake a transfer.
There is also a slight chance of a problem due to an IRS letter ruling regarding partial transfers. However, in this case it appears to be a total transfer of all the assets that are part of the 72t plan, so it should not be a problem. In changing custodians, it is best to handle it by direct trustee transfer rather than rollover, and best to avoid December changes of any kind. December is the month that the total distributions for the year should be carefully checked to make sure they are exactly right, and if not to make the critical corrections needed.
Permalink Submitted by Dennis Prout on Mon, 2008-12-08 21:53
In this case we have a client who is taking the 72t from their brokerage account, and wants to instead take the 72t from an IRA annuity. So there is no transferring of assets, just switching the account and custodian from which the 72t distribution is coming from.
Permalink Submitted by Alan Spross on Mon, 2008-12-08 22:14
If both the IRA annuity and the brokerage account IRA values constituted the original account balance, then the 72t distribution can come from any of those accounts that were part of the original plan and the actual IRA account funding the distribution can change. If this happens, any 1099R will probably lose the exception coding in Box 7 and a 5329 will have to be added to the tax return to claim the penalty exception. This may already be the case.
Was the IRA annuity in existence on 1/1/07 or was it created by transfer from the brokerage 72t account after that date?
Permalink Submitted by Dennis Prout on Tue, 2008-12-09 14:13
Both the IRA brokerage account and the IRA annuity were funded at the same time. A 401k rollover was processed, with part of the proceeds going to the brokerage account and part to the annuity. My concern is that I don’t think the 72t was calculated using the total balance of both accounts. I believe the 72t amount was calculated using only the balance of the brokerage account.