72t Custodian Change
L1: 72t Custodian Change
I established an IRA 72t SEPP account in January 2006 with one custodian and one financial adviser. There are 3 individual accounts within it: a variable annuity, an actively managed mutual fund account, and a brokerage account.
I have been receiving monthly RMD payments from my 3 accounts since inception. I am 55 years young and need to continue the SEPP distributions for another 4.5 years.
I understand that I cannot do a partial transfer of assets to another custodian and also keep some assets with my current custodian.
Can I do a complete transfer to 2 new custodians, eliminating my current custodian altogether?
Cheers, Pete2010-12-22 22:43, By: Pete, IP: [126.96.36.199]
L2: 72t Custodian ChangeWhy not do a 100% transfer of all three accounts to a new brokerage account at a custodianwhere all the investment can be included. 2010-12-22 23:39, By: Gfw, IP: [188.8.131.52]
L3: 72t Custodian Change
GFW, Thanks for the advice. I already have a Vanguard Inherited IRA account with an attached brokerage account and I love it. I see your point about simplicity.
The total value of my 72t account is about $1 mil. I’m concerned about managing all of it myself. I was thinking about using Vanguard as custodian for half and giving the other half to another custodian in a managed account.
Any other ideas??
Pete2010-12-23 00:04, By: Pete, IP: [184.108.40.206]
L4: 72t Custodian ChangeBecause you use the phrase “another custodian in a managed account”, this may not apply to you, but many investment managers will be happy to manage your money with whatever custodian you choose. And so, you may be able to leave all of the money with Vanguard in a single account, even if you have someone else manage half of the assets for you.2010-12-23 00:14, By: knupug, IP: [220.127.116.11]
L5: 72t Custodian Change
KNUPUG, Thanks for your reply. I’m planning to meet with a new financial advisor in January and will definitely mention that. Excellent idea for keeping things simple………
I really want to confirm that the IRS will allow me to do a complete 72t transfer from my current custodian to 1 or more new custodians without having to worry about their unclear partial transfer rules.
Pete2010-12-23 00:35, By: Pete, IP: [18.104.22.168]
L6: 72t Custodian ChangeAbout the only way to do that – confirm that the IRS will allow me – is to file a PLR with all facts and circumstances – plan on about $9kto $10k for the PLR plus professional fees2010-12-23 00:44, By: Gfw, IP: [22.214.171.124]
L7: 72t Custodian Change
GFW, So are complete 72t transfers as questionable as partial transfers are. I can’t imagine that I’d be compelled to keep the same custodian for the term of the 72t???
591/2 is looking better and better……….
Pete2010-12-23 00:55, By: Pete, IP: [126.96.36.199]
L8: 72t Custodian ChangeComplete transfers are not a problem.
But because no one understands the IRS rulings on partial transfers, we don’t know for sure what they view as a partial vrs a full transfer. If you have only one IRA account as your SEPP and transfer the entire balance, then that is obviously a full transfer.
But in your case, if you have 3 accounts in your SEPP universe and tranferred them to 2 different custodians, no one can be sure that the IRS will not view that as a partial simply because you have more than one new custodian. That may be why gfw recommended one new custodian instead of two. This is the problem when the IRS issues a ruling and cannot or will not explain it rationally. We end up having to guess what really was in their heads.
That said, there have only been two such cases we are aware of out of several thousand transfers, so the number of busted plans for other reasons outnumbers the transfer situation problem by an infinite amount. Your risk of busting your plan for other reasons, such as too much complexity tripping you up is far greater than the partial transfer concern.
If you transfer accounts directly, at least there is no 1099R issued and you do not have to report a rollover. That draws extra scrutiny. But still you will have a different custodian issuing your 1099R, and the IRS could notice that, even though you might have had that account in your SEPP all along, but not have been distributing from it.
Perhaps you can find an independent planner or broker who will act as advisor through one custodian for a fee, eg 1% of assets. Then you would have only one brokerage account and could still take advice from this person for any portion of the assets you chose. I understand with most managed accounts in large firms, they are going to want to transfer the managed funds into a new account number and you sign over authority to them via POA. But I think you can find someone who does not require that particular structure. You could achieve overall simplicity and not invite IRS inquiries as well.
2010-12-23 02:24, By: Alan S., IP: [188.8.131.52]
L9: 72t Custodian ChangeAlan S. – Thanks for your excellent reply! It’s hard to believe that with as much tax as we pay, the IRS doesn’t give us the courtesy of clear guidelines.
Let’s hope for a strong economic recovery in 2011.
Pete2010-12-23 02:56, By: Pete, IP: [184.108.40.206]
L10: 72t Custodian ChangePete:
I am a financial advisor and work with the three different account arrangements you have described. So let me ask a few questions for clarification that may help you with your dilemma.
1. Usually when someone talks about changing custodians and their current advisor, some problem has cropped up to drive the need to make changes. Without going into details here, ask yourself whether the current custodian / advisor arrangement has gotten so bad that you must make a change before completing your SEPP Plan requirements. If you can “live with the current situation” until the SEPP Plan is complete, then you can save a lot of potential problems by making changes.
1a. Which two accounts are you considering moving to a new custodian?
2. Please tell us where the assets are held. I assume that yourvariable annuity (VA) was purchased through an advisorandthus directly from the issuinginsurance company which is also your VA custodian. Is the VAan IRA as opposed to a non-qualified asset? If it is non-qualified thenyou really have a 72(q) instead of a 72(t) on this asset. Where did the assets come from to fund the VA?
2a. Who is the custodian of the managed, mutual fund account?Does the manager of the mutual fund account have “discretion” which means they can make investment decisions and changes without consulting with you first? Most such accounts do NOT have”discretion” for management.
2b.Who is the custodian of the brokerage account? Is it the same as the managed account? Did you get this account from the same advisor as in 2a or did you set it upby yourselfin the “online” environment? Are you actively managing this account and are you satisfied with the results?
3. Please tell us that the Inherited IRA is NOT included in your SEPP Universe. You should be receiving or getting ready to receive RMD’s from this account as a stand-alone. Inherited IRA’s are NEVER subject to early distribution penalties.
Others have addressed the uncertainty about how the IRS will view any moves in your situation so I won’t go there. However, here are some things to consider.
1. If the VA was purchased “direct” as I described above, then you generally can’t actually transfer it into a brokerage account. VA’s can be “linked” to brokerage accounts and they are reported to you “below the line” but the insurance company is still the custodian of record. So while the VA will show up on your brokerage statement and its sub-accounts will be listed individually and the total will be added to other assets that really are “held within” the account, the brokerage custodian is NOT the custodian of the VA. The only way I am aware to make a brokerage custodian be the VA custodian is to make the original purchase of the VA through the brokerage account. This paragraph should give you a great topic for discussion with your current and prospective new advisor.
2. Do you plan to keep the VA or are you considering surrendering it for a new VA or moving these dollars into one or both of the other accounts? If you plan to surrender the VA then you open up a really big can or worms. Consider potential surrender changes and the loss of death benefitsÛ and possibly any living benefitsÛ you may have with this contract. Also, I think surrendering the VA and combining with the other accounts would more than likely be considered a partial transferÛ by the IRS which seems to be a bust.Û
3. When selecting an advisor to actually manageÛ your assets, consider using a third-party managerÛ separate from the independent broker / advisor you meet with. Advisors come in two forms: asset gathersÛ and actual money managers.Û Rarely do you find one person who does both of these tasks well; rather they do one or the other best. In my practice I have tried both roles but discovered I am better at gathering the assets and then finding a highly competent firm to actually manage or run the money.Û Many studies have shown this later model serves clients best so I would recommend that you seek this type of arrangement. Also you can give discretionÛ to a third-party manager much easier than a broker / advisor. In fact most firms do not allow their brokers / advisors to have discretion over their clients’ accounts. Finally, third-party managers are in a better position to function as fiduciariesÛ which is a really big issue.
Good luck with your challenges and I hope these items will help your decision-making process.
Jim2010-12-23 15:39, By: Jim, IP: [220.127.116.11]
L11: 72t Custodian ChangeGREAT EXPLANATION.
Maybe gfw can “memorialize” this so it is available to everyone who visits this website and is in a similar situation.2010-12-23 18:25, By: dlzallestaxes, IP: [18.104.22.168]