tax reporting 72T payments | Ed Slott and Company, LLC

tax reporting 72T payments

Mrs. Client has been taking withdrawals from her XYZ annuity on a monthly basis in the amount of $1066.67. The withdrawals; however, have been going to Broker Dealer ABC which is the custodian of this annuity and her IRA which the annuity is linked to. The monthly checks were deposited within her IRA brokerage account and were subsequently distributed to Mrs. Client. Now, here is the issue XYZ Annuity company processed a 1099R which shows an amount of $12,800 being distributed. I believe Broker Delaer ABC should be the only one that should have issued a 1099R which shows a taxable amount. The distribution code is #1, maybe this is correct, but how would you handle this reporting if I have this 1099R from XYZ Annuity Company and a 1099R from Broker Dealer ABC with the same amount ? Please help. :?: Thank you Lewis

I am not sure what account structure is indicated by "linked". However, there should be no 1099R from the annuity IRA if the transfer is done by direct trustee transfer. If this is being done by individual monthly rollover, the 72t plan has been busted. The reason for that is the one rollover limit per IRA account per 12 month period, and the 1099R from the insurer suggests that there are 12 distributions and rollovers every year. Since only the first one is rollover eligible, this would create excess contributions to the IRA that is funding the 72t plan. Hopefully, the client can show that these are not being done by indirect rollover and the insurer 1099R should never have been issued. If these transfers are correctly handled as direct transfers, then she can simply report 12,800 as a rollover on line 15b, with a gross distribution of 12,800 remaining which complies with the 72t calculation. If the insurer will not rescind the 1099R, she needs to keep evidence that the actual transfer was done directly in the event of an IRS inquiry. It is not advisable to have multiple transfers in connection with a 72t plan, for this very reason. Errors can occur and the 72t requirements are rigid. The one rollover allowed per IRA per year should be preserved as a safety valve to correct errors in the event a roll back is needed to balance the distributions at 12,800 as of year end.
 

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