72(t) eligiblity if you roll over into new Employer’s Plan (Not an IRA)

You are here:
  • KB Home
  • 72(t) eligiblity if you roll over into new Employer's Plan (Not an IRA)
< Back

L1: 72(t) eligiblity if you roll over into new Employer’s Plan (Not an IRA)Does anyone know what happens to 72(t) eligibility if you roll over your account balance tothe new employer’s 401(k) plan rather than to a Rollover IRA?
That is, can you still take a 72(t) distribution from thenew account based on assets accrued under the old plan?
THANKS!2009-09-10 23:34, By: Schleckbaum, IP: []

L2: 72(t) eligiblity if you roll over into new Employer’s Plan (Not an IRA)While I think it is technically permitted, you have to check with your new employer’s plan administrator to see if the new plan permits it.
However, if you are 55 (or will be by 12/31/2009), and “separated from service” from your prior employer during 2009, then you should not roll the old plan over to the new plan. You are eligible to take distributions from that old plan before 59 1/2 if the old plan permits it.2009-09-10 23:49, By: dlzallestaxes, IP: []

L3: 72(t) eligiblity if you roll over into new Employer’s Plan (Not an IRA)There are problems here depending on what type of retirement plan is being used for the rollovers.
You definitely cannot start a 72t plan with IRA funds and then roll them to an employer plan such as a 401k because this is deemed to be “another retirement plan” according to Notice 2002-62. Another retirement plan means a different type of plan under the tax code and such a transfer is a modification of your plan. There has even been some recent IRS rulings that indicate that some people at the IRS even have problems with IRA to IRA transfers, thinking that a different account may constitute “another retirement plan” when it has always been assumed that IRA to IRA transfers or rollovers were permitted.
This also brings up the question of moving a 72t plan from one employer’s 401k to a new employer’s 401k. Since each such plan cannot be aggregated with other such plans in any way, I think it is prudent to consider such a transfer as a modification (bust) of the 72t plan. My conclusion is that it is only safe to do IRA to IRA transfers and no other transfers without creating fatal risks to your plan.
To take this one step further, while it is perfectly legal to initiate a 72t plan using a qualified retirement plan (401k, 403b), very few plans have any experience with 72t plans and do not adequately support these plans. In addition, certain corrective mechanisms such as rolling back excessive distributions is not available with such plans. Therefore, I would not recommend even starting a 72t planusing a non IRA account. It just creates too many risksin relation to theseverity of the penalty.
Check into the age 55 separation penalty exception mentioned in the prior post. You may not even need a 72t plan if you qualify and if the plan will offerflexiblepartial distribution options.2009-09-11 02:55, By: Alan S., IP: []

L2: 72(t) eligiblity if you roll over into new Employer’s Plan (Not an IRA)Bear in mind that you cannot take a 72(t) paymentfrom a qualified plan- such as a pension, 401(k), profit sharing plan; or a 403(b) account if you are still working for the employer that sponsors that plan.2009-09-11 09:20, By: Denise Appleby, IP: []