72t in two IRA Accounts
L1: 72t in two IRA AccountsI have a client taking a 72T, she has two IRA accounts. One account is a fixed annuity and the other one is in a brokerage account. She has been taking money from the fixed account and transferring it to the brokerage account once a year and the brokeraqge account send her allowable check. The brokerage account now says she cannot do that. (they have been doing it for the past 3 years) Any suggestions? Thanks2009-05-14 14:04, By: jcitonj, IP: [220.127.116.11]
L2: 72t in two IRA AccountsI assume you mean that the brokerage account will still issue checks, but that they are alleging that the 72t plan is invalid because of this practice.
This all boils down to whether her plan included the account balances of BOTH IRA accounts in the beginning balance for the 72t plan 3 years ago or whenever the plan began. If so, this is a direct transfer between two IRA accounts within the “SEPP universe” and the plan is OK.
If not, and only one of these accounts was included in the initial calculations, then this plan was invalid from the start. A taxpayer cannot run 72t distributions through another tax deferred account that is not part of the plan from Day 1. From here, you only need further suggestions if you find that the plan is already busted with respect to reporting the bust on tax returns, whether to start a new plan etc.2009-05-14 18:02, By: Alan S., IP: [18.104.22.168]
L3: 72t in two IRA AccountsI am trying to understand how multiple SEPPs work. Will the IRS allow me to rollover my 401(k) into separate IRAs and setting up more than one 72(t)s with separate withdrawal limits on each 72(t) account ? Please tell where I find the answer to this issue. Thank you.2009-05-28 04:50, By: nuttrl, IP: [22.214.171.124]
L4: 72t in two IRA AccountsThere is no limit to the number of SEPP plans that you maintain, although I have never heard of more than two or three. Each plan must obviously use separate IRA accounts. Most people with more than one plan start a second one a few years down the road when their first plan fails to produce enough income. There is also the possibility of setting up simultaneous plans, and if you bust one, the other would not be affected. This hedging seems to overlook the fact that the more moving parts you have, the more likely an error would occur that would bust one or both of the plans.
The standard approach for those with enough assets is to first directly roll the 401k into a rollover IRA. Then identify the amount you need to fund your SEPP using the highest interest rate and individual (not joint) life expectancies. Directly transfer that amount into a new IRA account and start your SEPP from the newest account. The original rollover IRA will not be part of the SEPP and can be used for emergency needs to help protect the SEPP. If you use the entire balance of your retirement plans, then you will not have an emergency account to draw from.
But it is very easy to establish multiple IRA accounts after doing one direct rollover. Of course, the holdings as well as the balance of each account needs to be considered.2009-05-28 23:23, By: Alan S., IP: [126.96.36.199]