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Beware of Believing that Financial Adivsors are Knowledgeable of 72T Rules. Even the Big Companies Make Mistakes.


Tanko1
Posts: 4
Topic starter
(@tanko1)
Eminent Member
Joined: 5 years ago

This story is just a "watch-out" for those of you using financial advisors to assist with 72Ts. They may not be as smart on 72T rules as you think or as they think they are.

Background
I started my 72T a few years ago at a very very large investment company. It's one of the 2 biggest 401K guys. My financial advisor at this company helped step me through the process and fill out the forms etc... (I've been with them for 30+ years). He seemed very knowledgeable on 72Ts and explained that he had a lot of company resources (experts) available to answer questions. To be honest, from what I learned on this site (& its predecessor site) I felt I was very knowledgeable too but, hey, I'm not a certified financial advisor so you trust the experts, right? 

Since I did not need a large annual 72T withdrawal, we split up my IRA into 2 different accounts before starting the 72T.  One account would be my 72T and the other would be managed by my financial advisor. Over time we'd discuss investments and options for those funds. All was going well for the last couple of years until recently.

Recent Events
My financial advisor offered some financial investment advice for a portion of the funds in my 72T account. It looked good and my advisor indicated it would have no impact on my 72T status so I was going to proceed to invest the funds. Unbeknownst to me, and not stated by my advisor, was that the funds were actually going to be moved into another account to purchase this investment. This would have "busted" my 72T and cost me tens of thousands of dollars in IRS penalties. Luckily, I caught the problem before it was too late. 

I called my advisor and asked, what were you thinking? He explained that he thought we were allowed to move some of the funds in a 72T out of that account. He thought that any amount above what was needed to complete all the 72T payments over the plan period was available to be moved into other accounts. He had even checked with two "experts" within their company to make sure we would not bust my 72T.  Wow.  Experts. They were WRONG.

I read the 72T rules to him and asked him to check with a different "expert" within his company. Sure en0ugh, when he called back, he said the first two experts were incorrect and if we had completed the transaction we would have busted the 72T. 

It just goes to show you, you cannot always trust your financial advisor's knowledge on 72Ts even if they have years of financial experience with a major investment company, state that they understand 72Ts well, and have "experts" within their own organization available to help them.  

 

Once a 72T is established, you cannot invest or split the account during the plan period (there may be some unusual exceptions to this - medical, death, etc... I'm not sure). Within the 72T, you can invest in different assets for gains/losses and take out equal periodic payments over the plan duration but never split up the account funds into other accounts while setting up new investments.  Always ask 2 or 3 times, "Will the investment funds remain in the original 72T account?". "Will this impact the status of my 72T account".  The more you know the 72T rules, the better you will be protected from mistakes.

Also, I've read somewhere back in the forum achives (not sure where or if it is confirmed), that YOU are responsible for a 72T "bust", even if your financial institution makes mistakes.

 

2 Replies
dlzallestaxes@msn.com
Posts: 193
(@dlzallestaxesmsn-com)
Illustrious Member
Joined: 5 years ago

GREAT POSTING. I would add to it the fact that most CPAs do not not even know about "SEPP 72-T's" as a terminology, let alone all of the nuances covered by this website, and its predecessor. I think your "warning" should become a permanent posting on the HOME PAGE !!!!

And yes, just like with a 1040 tax return, the taxpayer is responsible for all information on their tax returns, and the operations of all of their retirement accounts.

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1 Reply
Tracy
Admin
(@tracy)
Joined: 5 years ago

Illustrious Member
Posts: 32

Agreed. Thank you Tanko and DZalles for the great reminder. I will work on making this message stand out on the website.

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