72(t) Transfer of Assets
L1: 72(t) Transfer of AssetsI have a client that recently established a 72(t) with one custodian. Now they would like break out just the calcualted payments and transfer the remaining assets to another custodian. In effect they would be going from having one account with one custodian to two accounts with two seperate custodians. One would have the distributuion coming out of it unchanged and the other set aside for growth for future distributions. Can this be done? I was under the impression that you must keep those assets together once you begin the payment stream. Technically you could move the assets as a whole, but to break them up now and have two seperate accounts was against the rules. Plesae let me know and if you could site IRS pub, Rev etc that would be great.2010-06-16 12:47, By: Maverick, IP: [18.104.22.168]
L2: 72(t) Transfer of AssetsPartial transfers were very common up until the IRS released PLR 200925044 & PLR 200720023.
Partial transfers have created a few problems in the past – PLR 200925044 & PLR 200720023 – both dealt with partial transfers that were rejected by the IRS.
Also remember that a PLR is only good for the taxpayer to whom the PLR was issued and that there couild be facts different than your client’s facts.
The whole issue of partial transfers could be eliminated if the SEPP was set up under a Custodial Account that allows most any investment. 2010-06-16 13:34, By: Gfw, IP: [22.214.171.124]
L3: 72(t) Transfer of AssetsThank you.That is good information and references. I also found my answer in doing my research in 2002-62 page 5 whcih restricts it. I am checking on exactly how the a/c is registered as we speak. I am hoping that it is a custodial a/c.2010-06-16 14:41, By: maverick, IP: [126.96.36.199]
L4: 72(t) Transfer of AssetsWith respect to your comment re 2002-62, I am assuming that you refer to the following section:>>>>>>>>>>>>
Changes to account balance. Under all three methods, substantially equal periodic payments are calculated with respect to an account balance as of the first valuation date selected in paragraph (d) above. Thus, a modification to the series of payments will occur if, after such date, there is (i) any addition to the account balance other than gains or losses, (ii) any nontaxable transfer of a portion of the account balance to another retirement plan, or (iii) a rollover by the taxpayer of the amount received resulting in such amount not being taxable. >>>>>>>>>>>>>The “another retirement plan” was interpreted to refer to another TYPE of retirement plan eg. TIRA to QRP, not just another account in the same type of plan. 5 years passed between 2002-62 and PLR 2007 20023 during which thousands of these partial transfers were completed without incident. In fact, IRS Regs specifically authorize a conversion of a 72t plan TIRA to a Roth IRA. Granted, there is the issue of what “a portion of the account balance” means since the Roth conversion Reg appears to address a total conversion rather than a partial. However, the IRS has also consistently allowed aggregating several TIRA accounts for SEPP calculation purposes in what we call a “SEPP universe”. Taxpayers have been transferring these accounts around for years and each such transfer could be considered to be a partial transfer to another retirement plan. Thus the conclusion that the 2 PLRs are basically an aberration, and they exist without a rational explanation of IRS’ basis for those rulings.Bottom line is that there is a very small risk indoing a partial transfer, perhaps slightly increased if the funds move by indirect rollover which triggers reporting, a 1099R and a 5498. One way to eliminate that small risk altogether is to do a full transfer rather than a partial, or if the full transfer won’t work, just be sure the improved investment results are compelling enough to take that small risk.2010-06-16 22:59, By: Alan S., IP: [188.8.131.52]