Transfer of IRAs in year 2+ of 72(t)
I have a potential client that has two IRAs where he elected distributions using 72(t)/SEPP back in 2016 and 2017, respectively. He receives monthly distributions. I have two questions…1) He’d like to transfer the IRAs to our firm. Can he do so without busting the 72(t), and 2) Does taking the distributions monthly or annually matter, or does the IRS just lump the payments into specific years? And does it matter what time of year he started taking payments?
Permalink Submitted by Alan - IRA critic on Sat, 2019-02-02 00:33
Sounds like he is running two independent 72t plans side by side. Since the plans do not affect each other, he could transfer either or both IRA accounts to you. A partial transfer of a balance within a single plan is somewhat risky and the IRS has busted a plan or two in the past for that, but that is not what is proposed here. The distribution pattern does not matter, only the 1099R total for the IRA(s) for each plan must be exactly correct. It does not matter which date he started the distributions, or if he pro rated by the month the first year instead of taking a full annual distribution. The major risk here is getting mixed up and making an error in execution, since he will be getting 4 different 1099R forms this year, 2 for each plan. Therefore, the 2 for each plan must total to the annual calculation for each plan.
Permalink Submitted by Josh Harmon on Mon, 2019-02-04 17:52
One more question… If he started taking the 72(t) payments in October of 2017 on a monthly basis, the 1099 for 2017 and 2018 would match. Does this blow up the 72(t) payment arrangement?
Permalink Submitted by Alan - IRA critic on Mon, 2019-02-04 18:19
Did you mean that the 1099R forms would NOT match? If the distributions for the first year of the plan are pro rated by the month (eg Oct start has the option of taking 3/12 of the annual distribution amount), then later year 1099R forms would be 4 times as much. This is not a problem.
Permalink Submitted by Josh Harmon on Mon, 2019-02-04 19:26
and the final year will show 9/12ths? or the whole thing?
Permalink Submitted by Alan - IRA critic on Mon, 2019-02-04 20:21
For the final year you could distribute 9/12, full annual, or even 0 if you have taken out at least 5 years worth before the final year begins.