72t and rollover
L1: 72t and rolloverIf someone is taking money out of their IRA via 72t, could they rollover or transfer that IRA to another custodian and then continue 72t payment?2009-07-22 22:27, By: GC, IP: [220.127.116.11]
L2: 72t and rolloverYes, this can be done either way, but it is best to use a direct transfer and that will preserve the rollover for emergency use. In the event that the current custodian is coding the 1099R with the penalty exception, that will probably end, and a 5329 would need to be added to the tax return to claim the exception. Finally, if the transfer is made, the annual distribution total should be carefully checked in December to make sure it adds up correctly for the two custodians.2009-07-23 17:58, By: Alan S., IP: [18.104.22.168]
L3: 72t and rolloverAlan – Using GC’s example of changing custodians, if the IRA contains dividend paying stocks, how do you ensure that the future dividends go directly to the new custodian? What’s the correct course of action if they go to the old custodian or to theIRA owner?2009-07-23 20:41, By: Jimbo, IP: [22.214.171.124]
L4: 72t and rolloverThe “trustee-to-trustee transfer” method provides that all trailing dividends and interest generated in the old account will follow the transfer directions. They should not stay in the old account or be sent directly to the client. Having said this, watch out for Murphy’s Law.
Jim2009-07-23 21:21, By: Jim, IP: [126.96.36.199]
L4: 72t and rolloverGood question, Jimbo.
For IRAs that contain several of these stocks, it may be impossible to select a transfer date before any ex dividend dates create a trailing dividend situation. In these cases, taxpayer must make a decision based on the capabilities of the original custodian. Usually, the account shouldremain open to collect all the outstanding dividends, and then a second or more direct tranfersshould be done within a month or so. If they won’t do that, and insist on distributing the cash, then these payments would be part of the annual 72t payment and the payment from the new custodian would have to be adjusted downward. In this situation, the initial transfer should probably not be ordered after Nov 1st since to eliminate year end from occurring before all transfers have been completed. I would definitely eliminate the idea of rolling dividend cash payments over and creating a risk of more than one rollover per 12 month period or using up that one rollover rather than preserving it for emergencies.
I suggest a detailed discussion with someone at the original custodian who both understands 72t plans and the account servicing platform for handling transferred accounts, and can provide assurance of automatic additional transfers of the dividends.
If taxpayer is not comfortable with the answers received, they might consider selling the applicable stocks and repurchasing themor a replacement in the new IRA account. A few lost commission dollars are preferable to a busted SEPP or losing sleep over the process.
Finally, this situation underscores the desirability of making the transfer in the first place. Does the new custodian offer enough of an advantage to make it worth addressing this and other unanticipated problems? Perhaps not. And the new custodian might be asked about how they would handle this. Some custodians are not above using active 72t plans as leverage to retain assets, and some have incorrectly told clients that any transfer will bust the plan. 2009-07-23 21:22, By: Alan S., IP: [188.8.131.52]
L5: 72t and rolloverAlan, right on. The using of an active 72t as leverage to retain assets is what has me concerned. The advantage of switching custodians is the ability to trade equities at a discount with the proposed custodian. The in and out with the current custodian is about $0.45 round trip per share vs about $10.00 per trade with the new custodian,regardless of the number of shares.
So, what happens if I receive a trailing dividend from the shares that I transfer from old to new custodian? Did you say that I can count that as an indirect rollover, but if I do that’s it for rollovers for the next12 months? Or I can count the dividend as part of the annual distribution and adjust the distributions from new custodian for current yearso that the total equals the regular annual distribution?
$2009-07-24 04:57, By: jimbo, IP: [184.108.40.206]
L6: 72t and rolloverMark this as a rare day I must disagree with Alan on a point of procedure, specifically this statement:
“Usually, the account shouldremain open to collect all the outstanding dividends, and then a second or more direct tranfersshould be done within a month or so.”
As I stated in my first post to this string, the system is designed to automatically transfer trailing dividends and interest earned in the old account, which should be closed,to the new account, regardless of whether the new account is with a new custodian or theold custodian. If the transfer is from one brokerage account to another brokerage account as Jimbo is doing, then the transfer is called an “ACAT” transfer. If the transfer is between a mutual fund type account(s), called non-brokerage,and from / to a brokerage type account, then it is called a “Non-ACAT” transfer.
Regardless of the type transfer, you should ALWAYS CLOSE THE OLD ACCOUNT! If you leave the old account open, then you will have two accounts open, and trailing dividends and interest WILL REMAIN IN THE OLD ACCOUNT. By closing the old account the systemis designed toautomatically transfer trailing dividends and interest from the old account to the new account.
Always confirm this process with your loosing custodian and monitor the process. If you are using an ACAT Transfer, the action should be completed within a few days of the custodian receiving your paperwork “in good order.”
Jim2009-07-24 13:25, By: Jim, IP: [220.127.116.11]
L7: 72t and rolloverJim.
When the non ACATS proceduremust be used, are those accounts technically closed as well, inasmuch as these transfers take considerably longer?
2009-07-24 18:44, By: Alan S., IP: [18.104.22.168]
L8: 72t and rolloverGood morning Alan:
The answer to your question is, “It depends on which block on the form you check.”
You will haveseveral optionsranging fromtransfering all shares and close the account totransfer part of the account and keep the account open. If you are transfering mutual funds INTO a brokerage platform, you will have the option to transfer the funds “In Kind” or to “Liquidate and transfer cash.” If you are going from fund company to fund company or annuity company to fund company, or whatever the situation is, you will have the option to liquidate SOME OR ALL of the assets and transfer to the new company. If part of the assets are liquidated then the old account will remail open. If you liquidate all assets the old account will be closed. This is by no means a list of all possibilities, so read the form carefully and select the option that describes what you are trying to accomplish.
The main point to remember is that if you DON’T SELECT AN ACCOUNT CLOSING OPTION, then the old account will remain open and dividends and interest will continue to accumulate in that old account. If you do select an ACCOUNT CLOSING OPTION then trailing dividends and interest will follow the path to the new account per the transfer instructions.
Bottom line: RTFForm carefully!
Jim2009-07-27 14:20, By: Jim, IP: [22.214.171.124]