72t invested in multiple mutual fund families
L1: 72t invested in multiple mutual fund familiesI have an established 72t at Vanguard with several mutual funds. In addition I would like to invest in funds outside of the Vanguard family. They will allow me to setup a brokerage account linked to my 72t. If I do this will it affect my 72t status in any way? Thanks2012-10-02 13:33, By: Bill, IP: [126.96.36.199]
L2: 72t invested in multiple mutual fund familiesBill:
I think I follow your post but please clarify the following …
“They will allow me to setup a brokerage account linked to my 72t.”
If the “They” you refer to is Vanguard, then you have a simple situation. Simply set up the brokerage account at Vanguard, transfer all SEPP Universe mutual funds into the brokerage account, then make whatever fund trades you wish. If the “They” is another brokerage firm, you can still do the transfer and be OK, but it creates more moving parts and that seems to create the most problems. Of course you could set up a brokerage account at Vanguard, then move the whole thing into another brokerage account at a new firm.
Your 72(t) will be based on the total values and distributions from the brokerage account, not the individual mutual funds as it is currently. Just be sure you DON’T leave any assets outside of the new brokerage, 72(t) account. Doing so would constitute a “partial transfer” of an established SEPP Plan and that has received some negative responses from the IRS. Total transfers work just fine.
Jim F2012-10-02 14:36, By: Jim F, IP: [188.8.131.52]
L3: 72t invested in multiple mutual fund familiesI have had an IRA with Vanguard since 2005, and had a SEPP running for past 5 yrs. My account was setup so I could purchase Vanguard funds, and I could buy other funds thru a brokerage account on that IRA, and Ibought and sold a few stocks & mutual funds, and there was no problem. I have investments in both sub accounts. They did classify the outside investments in a different sub-catgeory, but it was all in the same IRA account, and I got one 1099-R per year for my withdrawals. It sounds to me that they would allow you to open a brokerage account within that IRA to do those trades, but I would check with them. BTW- When I bought outside investments (MFor STOCKS) the money came from my Vanguard Prime Money Market account in the Vanguard funds portion of the IRA, so I did not have to move any of my funds to the brokerage account unless I was buying something. It only held the stocks and bonds I had purchased. KEN2012-10-02 16:12, By: Ken, IP: [184.108.40.206]
L4: 72t invested in multiple mutual fund familiesThis is where Vanguard’s unique account platform characteristics meet the IRS’ strange letter ruling busting a SEPP for a partial transfer.
For an IRA account, VG requires you to open a mutual fund account (which they refer to as “Traditional IRA” to hold their mutual funds, and a VG Brokerage Services (VBS) account to hold ETFs, CDs, stocks, bonds, virtually everything other than their own mutual funds. Further, I have not been able to locate any summary description of their account platform on their website. Once I asked a VG rep to explain it and he was not able to. In 2009 when VG dumped Pershing as their clearing firm and changed to their own clearing firm, many expected that they would revamp their account platform as well, but it never happened. I can only guess that the current situation reflects a turf war between the old mutual fund side of the house and the newer brokerage Dept. It’s unfortunate for an otherwise great company.
More to the point, Ken’s description of these accounts as “sub accounts” may be illuminating if he is correct. If distributions from the mutual fund and brokerage accounts are combined on a single 1099R, and if the two different account numbers are only sub accounts, then there may not be a different account number showing ona later1099R even if a partial transfer was done to fund the brokerage account.
While the partial transfer IRS ruling makes no sense, and while that ruling is an outlier, itshould notbe totally ignored. So if the VBS sub account is not really a different IRA account, it would eliminate the issue of a partial transfer.
But I am curious – Ken, which sub account number did they show on your 1099R, the mutual fund account # or the VBS account #? Or something else?2012-10-02 18:31, By: Alan S, IP: [220.127.116.11]
L3: 72t invested in multiple mutual fund familiesHi Jim
Vanguard creates a brokerage account with a unique account number however it references back to the original Traditional IRA where all of my investments currently reside. Vanguard tells me that if I want to invest in a fund using the brokerage account then I will need to make sure there is enough capital in my Prime (money market) account. The money in the Prime account will be used to purchase whatever new funds I want in the brokerage account. 2012-10-02 20:34, By: Bill, IP: [18.104.22.168]
L4: 72t invested in multiple mutual fund familiesTo Alan’s question, The 1099-R has no acct# on it in the top section, only my SS#. In the details of the 1099-R (above box 4 Fed Tax withholding details and below that heading) they list the account number of the Rollover IRA account. When I set it up with Vanguard in 2005, I was told they would set up an investment account to handle any investments I decided to make outside the Vanguard family thru this IRA. As I said before, they use the Prime Money Market (cash) account to pay for all investment purchases, and any sales $$ or dividend $$ go back into that Prime Money market cash account. That Money Market account has listed under it (in my online view) “Sweep account Rollover IRA and then the ACCT# IIIIIIIIIII for reference to the outside Investments account. In the investments account section of online view, it has a notation “Sweep accountRollover IRA AccountNNNNAAAAAAAAAAAAAA NNN= Prime Money Mkt Sub Acct, and AAAA=main Acct# to show the link back to the main Vanguard account. They always combine the totals in the two sections to give me my total IRA value.
To Bill’s latest comment, the 1099-R shows the Prime Money Market Fund” in main Vanguard account as the source of the IRA withdrawals.
CORRECTION on THIS LAST PARAGRAPH…(Original text next–correction at end in CAPS) On another note– In 2011, the 1099-R had two line entries, with per age 59 1/2 $$ withdrawals coded “1” and post 59 1/2 coded “7”, for those that are interested,They had always used code “1” in the past. Just pointing out the mid year code 7 info. ———–CORRECTION IS–IT WAS ACTUALLY APRIL 2011 WHEN MY 5 YR PERIOD ENDED FOR THIS SEPP, AND EVEN THOUGH I WAS OVER 59 1/2 IN ALL OF 2011, THEY ISSUED THE CODE 1 FOR LAST 4 MONTHLY SEPP PMNTS (JAN-APR 2011) , AND THEN 2nd CODE 7 FOR THE REST OF 2011.
I hope this helps. KEN2012-10-02 21:02, By: Ken, IP: [22.214.171.124]