Changing Trustees

L1: Changing TrusteesCurrently I have a SEPP with a large “full service” broker. There are 2 IRAs in the SEPP universe consisting of mutual funds and stocks. The stocks pay dividends quarterly. I’d like to do a direct transfer to a discount broker and have the transfer be “in kind”, I don’t want to sell and then transfer the dollar amount (the brokerage fee to sell would be several thousand dollars).What do you recommend as the best way to avoid “trailing dividends”?Thanks.Also, thanks to Alan & Dennis for responses to my last question.2010-02-27 02:05, By: Jimbo, IP: [207.200.116.66]
L2: Changing TrusteesA trustee-to-trustee transfer of securities should accomplish your goal. This usually results in trailing dividends coming along as received.Just make sure that you do it before December, or whatever the latest “ex-dividend” date, to make sure they flow thru before 12/31. Just make sure to document that the new account is part of your “SEPP UNIVERSE”.2010-02-27 03:21, By: dlzallestaxes, IP: [173.49.30.37]

L3: Changing TrusteesHow does that work on the trailing dividend? Does the old broker send me the dividend less the withholding and then I sent the balance to the new broker and an additional amount for the withholding? Does the old broker send me a 1099R at the end of the year coded as premature w/o exception?What I was contemplating doing was to submit all of thetransfer paperwork to the current broker in Aprilon the day that the next dividend payment hits my account. Would this avoid the trailing dividend issue as the following dividend wouldn’t be paid for another 3 months. Would the ex-dividend date not make this work?Thanks again2010-02-27 20:22, By: Jimbo, IP: [207.200.116.134]

L4: Changing TrusteesThis should not be a problem assuming the broker is using the ACATS transfer system. In the link attached, note the Benefits paragraph that deals with trailing dividends and how they are automatically routed to the new custodian:http://www.dtcc.com/products/cs/equities_clearance/acats.php2010-02-27 21:30, By: Alan S., IP: [24.116.165.60]

L5: Changing TrusteesI met with my potential new trustee last week, regarding the T to T transfer of my 2IRAs which compose my SEPP Universe. The tentative game plan is to open two new IRAs with the new Trustee about 1 week before the T 2 T transfer. The new IRAs would be unfunded (zero account balances) until the assets arrive from the old Trustee. Is thisa correct way to do the transfer to avoid “busting theSEPP”? Also, as an alternate plan, can I open just one new IRA with the new trustee a week before transferand fundit with the combined assets from the two IRAs transferred from the old trustee and still not “bust theSEPP?Thank you2010-03-30 16:13, By: Jimbo, IP: [207.200.116.8]

L6: Changing TrusteesWhy do you have two separate IRA’s in your SEPP Universe? You may have explained this in an earlier post that I’m not aware of. But if you have one IRA on a brokerage platform and the other IRA is, for example, “direct” with the mutual fund company, then from what you have said in this string I don’t see any reason why you shouldn’t open one brokerage account IRA with the new custodian and transfer both into this new account. ACAT will transfer from the old brokerage IRA to the new brokerage IRA. If you have the second IRA with the mutual fund company the Non-ACAT will transfer the funds into the new, brokerage IRA. While they are separate creatures they basically work the same. Also, in both cases any trailing dividends or capital gains will automatically follow the transfer trail into your new account and there is NO SEPARATE TAX REPORTING for you to deal with. Now if you happen to have an annuity IRAas part of your SEPP Universe, that’s a horse of a different breed. Please comment on this possibility.Jim2010-03-30 16:47, By: Jim, IP: [70.167.81.119]

L7: Changing TrusteesI don’t have an annuity IRA.Both IRAs are with the same brokerage company. IRA #1 has cash, mutual funds and stock. My monthly distribution comes from this account. IRA #2 has a small amount of cash and mutual funds. The brokerage company takes their quarterly fee from the cash in IRA #1. The quarterly fee for IRA #2 is paid by selling a few shares of the mutual funds.When I originally began the IRAs, IRA #1 was cash and the stock from a 401K rollover. IRA #2 was all cash. I was going to agressively trade IRA #2 and monitor my results. As a starting point, the broker put me in mutual funds until I was ready to trade. Shortly thereafter, the market “tanked”. To this day I haven’t fully recovered. I’m still in the same asset mix.Quarterly fee at current broker is not exorbitant, but there is no quarterly fee at the discount broker and trading costs are much less. Even if I don’t actively trade, I’ll save a couple of thousand dollars per year in the quarter fees alone.At this point, keeping two IRAs is not that crucial to me. The new broker asked me if I wanted to combine into one account to simplify adminstratively.Thanks.2010-03-30 20:16, By: Jimbo, IP: [70.177.3.159]

L8: Changing TrusteesJimbo,I’m no expert, butif your first IRAwas from a401k rollover, and IF the other one was not a rollover from a retirement plan, (like a regular IRA you funded outside of your employment) I think once you combine them you may lose some additional protection (in terms of dollar limits protected beyond those offered to regular IRA’s) from creditors or bankruptcy,when the new single IRA is not all from those kinds of rollovers. I’ll let others comment to clarify this. KEN2010-03-31 04:26, By: Ken, IP: [71.192.120.143]

L9: Changing TrusteesKen raises an interesting point. I’m no expert on this either but my thought is that once money is transferred into an IRA, does the original source matter?
As to protection of assets from creditors for 401ks vs IRAs, there seems to be a lot of variation in how different states implement this. In Washington state, I believe that IRAs and 401ks have pretty much the same protection from creditors. This may or may not be the case in the OP’s state. It would be worthwhile to check on this to see what protections are available in his specific location.2010-03-31 06:51, By: Ed_B, IP: [71.236.183.224]

L10: Changing TrusteesJimbo,Try using google with “IRA protection from creditors” as the search. I found these two, and there are many others, and as Ed-B says, you should look up your specific state. Make sure the topic is after the 2005 fed bankruptcy law change, as older info may no longer be applicable.(paste these in to your browser.. I can’t seem to copy live hyperlink that works…)
http://ezinearticles.com/?IRAs-and-Qualified-Plans-Offer-Limited-Asset-Protection&id=2677181
http:/online.wsj.com/article/SB124181801239401917.htmlKen2010-03-31 13:47, By: Ken, IP: [71.192.120.143]

L11: Changing TrusteesThanks for the insight on protection from creditors, but I’m looking for info regarding transfer of two existing IRAs (that are a SEPP Universe) from my current trustee to a new trustee without “busting the SEPP”.Can I open unfunded IRA(s) with the new trustee THEN do a trustee to trustee transfer without “busting the SEPP”? Do I have to still need to have two IRAs or can I combine them into one IRA with the new trustee? My full question(s) are in the postings above in the thread.Thanks.2010-03-31 17:08, By: Jimbo, IP: [207.200.116.5]

L12: Changing TrusteesJimbo:Thank you for filling in the few missing details which I asked about. Let me answer your questions:Can I open unfunded IRA(s) with the new trustee THEN do a trustee to trustee transfer without “busting the SEPP”? Short answer is yes. Procedurally you will complete both the new account opening paperwork and the transfer paperwork at the same time and sign all forms on the date you complete them. Then your new rep at the newcustodian will process everything and you don’t have to do anything else with your old custodian. The account will be opened well before the assets transfer. Once they transfer, any trailing dividends and cap gains will follow from the old accounts into the new account. Moving both accounts at the same, or near same time, should not cause a “bust.” Do it now and you should be in good shape by the end of 2010.Do I have to still need to have two IRAs or can I combine them into one IRA with the new trustee?You may combine the two IRA’s into one account at the new custodian, which would be the prefered method based on your information in this string.Hope this helps.Jim2010-03-31 19:17, By: Jim, IP: [70.167.81.119]

L13: Changing TrusteesJimThanks for the reply (boost in confidence). I hope others will reply too.2010-04-01 01:27, By: JIMBO, IP: [207.200.116.10]

L11: Changing Trustees
Great suggestion, Ken. I did a Google search for “state IRA protection chart” and came up with the following web site article:
http://www.journalofaccountancy.com/Issues/2006/Jan/ProtectRetirementAssets.htm
As you suggest, this article appeared after the 2005 Federal Bankruptcy law changes, so should be current.
This article contains a chart at the bottom half of the page that shows a state by state comparison of which states offer protection from creditors for Traditional IRAs and for Roth IRAs. SEP and Simple IRAs are also mentioned.
As I posed in an earlier post, Washington state does in fact protect both types of IRAs, as well as some others, with the full protection generally applied to 401k plans. IRAs are exempt from the bankruptcy estate and all legal processes or proceedings that would attempt to interfere with that protection are banned here.
Unfortunately, a number of other states do not offer this level of protection. Check the chart to see how your state handles this question.

2010-03-31 17:34, By: Ed_B, IP: [71.236.183.224]

L12: Changing TrusteesAs an added incentive to open an account, new broker is offering an approximate $500.00 bonus to be put into the new account once it is funded with the trustee to trustee transfer. Since my accounts that I would transferare in my SEPP Universe, would the$500.00 added by the broker be considered a “contribution” and therefore bust the plan? Or would the $500.00 be considered the same as “market gain”.Thank you.2010-04-06 23:10, By: Jimbo, IP: [207.200.116.134]

L13: Changing TrusteesIf they report this as an IRA contribution to your SEPP IRA on a 5498, you have a busted plan.You need to ask the broker if this bonus will be added to(any) IRA, and whether the Dept of Labor will consider it under a PTCE (Prohibited Transaction Class Exemption). If not, you have a bigger problem than a busted SEPP, and that is a disqualified IRA. The following is from Groom Law Group on this subject:>>>>>>>>>>>>>>>
Û¢
Bonuses and relationship services. Financial institutions sometimes offer gifts or
bonuses for opening an account. Generally, a cash bonus paid directly into the IRA
should not raise a prohibited transaction issue (nor, in most cases, a tax issue),

though any giveback۝ requirement (
e.g., if the account is not kept open for some
minimum time period) may be problematic. However, anything of value given
outside۝ the IRA raises a potential prohibited transaction concern. DOL has issued
three class exemptions for these types of arrangements.

o
PTE 93-1 (the toaster۝ exemption) permits a financial institution to make
nominal payments of cash or gifts to an individual for opening or contributing
to an IRA.

o
PTE 93-33 permits the receipt of certain reduced or no-cost services from a
bank (
e.g., free checking).
o
PTE 97-11 provides a similar exemption for free or discounted brokerage
>>>>>>>>>>>>>Somehow, $500 would not seem to qualify under the “toaster exception” due to the amount.You couldplay it somewhat saferby havingthem open a separate IRA outside of your SEPP IRA and deposit the bonus into that IRA account or into a taxable account. But even that is not a sure bet because the bonus arose out of the transfer of your SEPP account to the firm, and therefore there is some risk it would become part of your SEPP universe by default. Before doing anything I would discuss this issue with them to see if they seem to be on solid ground here, not only for SEPP plans, but IRAs in general. See if they even know what a PTE or PTCE is……………….
2010-04-07 00:25, By: Alan S., IP: [24.116.165.60]