72T Setup a Bust?

You are here:
< Back

L1: 72T Setup a Bust?I gave my financial institution instructions to split my IRA into 2 accounts and to start a 72T distribution from the one account. The target was to accomplish this by the end of March to capitalize on the higher allowable interest rate. Well a distribution was indeed made in late March. However, apparently my financial institution was unable to get everything else in place in March. They have been adjusting investments between the 2 accounts until they finally (3 weeks later) have the proper funding level in the 72T account based on investment values from late March. I have questioned this and am being told that this is all okay. They will document everything, properly code 1099’s, etc.
Having read the Badger’s book and from the discussion here, I am skeptical. Does the IRS typically allow financial institutions this kind of flexibility in the initial setup, or would they need a time machine? I am not anxious to term this a bust, as the higher interest rate is important to my overall plan. However, I’m also not willing to assume a lot of exposure for future problems when right now I can still treat this as a rollover and start fresh. Thanks in advance for your help.2004-04-21 17:38, By: Doug, IP: [209.30.46.38]

L2: 72T Setup a Bust?Hello Doug:
I always counsel clients that 72(t) is NOT the place to be aggressive or otherwise take chances. Were I in your shoes, I would redeposit the withdrawal, quickly, so that it can be treated as a rollover under 408(d).
Then, I would start afresh. I recognize that the May, 2004 AFRs dropped and this may cause your calculations to suffer a bit. Either suffer that small decline, or what until June as I am pretty confident that the May AFRs will rise.
TheBadger
wjstecker@wispertel.net
2004-04-21 17:57, By: TheBadger, IP: [66.250.23.21]

L2: 72T Setup a Bust?I agree with the Badger – I too would start over.
And, the May AFRs did rise (we posted over the weekend) but, unfortunately by only 1 basis point from 3.80% to 3.81% – making the highest rate for June at 3.81%.2004-04-21 18:02, By: Gfw, IP: [12.221.34.192]

L2: 72T Setup a Bust?Sorry, I meant to suggest that Doug wait until July to take his first distribution so as be able to use the June AFRs.
TheBadger
wjstecker@wispertel.net
2004-04-21 18:51, By: TheBadger, IP: [66.250.23.21]

L2: 72T Setup a Bust?If a higher interest rate is important to your plan, then I would try to wait a few months. Rates are just too low right now and will move higher.
2004-04-21 22:29, By: G-T, IP: [24.145.242.199]

L2: 72T Setup a Bust?Badger and GFW,
Thank you for your prompt responses confirming my fears. It wasn’t the answer I was hoping for, but it was the answer I expected. It’s a whole lot better to hear it now rather than from the IRS several years from now.
The interest rate issue, while not ideal is manageable. Hopefully the June interest rate will take a decent jump. I was a little surprised and disappointed that the May rates climbed so little. Anyway, thanks again for your help! 2004-04-22 11:23, By: Doug, IP: [209.30.46.38]