account fracturing

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L1: account fracturingClient is using IRA A for 72t distributions. Has taken 72t distributions of $1000/m for past 48 months. Client is unhappy with IRA A and would like to transfer funds to IRA B ( a variable annuity with a living benefit rider that would diminish his withdrawalguarantee if he took withdrawals at the same $1000/m.) Can client leave enough money ($12,000) in IRA A and continue monthly distributions from that original IRA for 12 months.2010-03-31 21:08, By: Dodger, IP: []
L2: account fracturingCan he go it…Probably. Should he do it… don’t know. The IRS has never clarified their position on partial transfers – read Bill Stecker’s article HERE. Questions…Where in the SEPP plan is your client? When does the plan end? Will there be enough positive value after surrender charges to make the distributions next year if the market goes down? Should you leave enough for 2 years? Should you move any at all?Other thanyour commissions and the living benefit rider, what is the client gaining relatiive to the risk that both you and he would be taking if something goes wrong? 2010-03-31 21:23, By: Gfw, IP: []

L3: account fracturingPlan will end in one yearas client will be past 59 1/2 and satisfied the five year requirement. Money kept in IRA A will be held in a fixed account and client will not incur any surrender charges. (would keep a bit extra just in case.)Client is limited by investment options in IRAA.He has become an advocate of living benefit guarantees which along with Social Security will provide him with the guaranteed incomefloor he desires and still allow opportunity for growth by being invested in equities.Account is not large enough for either of us to consider “pushing the envelope” and taking any risks. We would likelly stay in IRA A for twelve more months and then make a swithch unless we were confident the fracturing would be acceptable.2010-04-01 13:10, By: Dodger, IP: []

L4: account fracturingLet me see if I understand your plan: Your client has one IRA which has an active SEPP running and all SEPP requirements will be satisfied within the next 12 months. Your plan is to “carve out” all but $12,00 plus some extra funds to cover IRA costs, and transfer the carve out amount into a NEW IRA account and invest into a VA with appropriate “living benefits” for future use. IRA A will then be depleted (basically) by continuing the monthly distributions of $1,000. And finally, until all SEPP requirements are met 12 months hence, the new VA IRA will remain dormant with no further activity … adding or subtracting funds from this new VA IRA. Have I got it right?If this is correct then refer to GFW’s first line in his response and your plan will “probably” work. However you should be cautioned that, according to Bill Stecker’s article linked to in GFW’s second line, whether or not the IRS will accept your plan is a real crap shoot.From a financial planning stand point your plan is sound and I would endorse it, being a financial planner myself. But from an IRS compliance perspective, it’s unknown if it will be accepted. Bottom line is that you should do nothing until your client gets a CPA’s or Tax Attorney’s WRITTEN OPINION that your plan will comply with all of the rules governing SEPP Plans. If you can’t get this WRITTEN OPINION, then you had best stick with the current IRA A for the next 12 months.One thing you might consider is to open a new, contributory,VA IRA for your client with a minimum deposit just to get the account opened and the the appropriate living benefits on it. By doing this you “insure” that you can get the living benefit your client wants and not be in danger of the insurance company dropping or drastically changing the structure of the rider. I’m sure you have watched over the last year how these contracts have changed as to their living benefit offerings. Of course in order to do this your client will have to have earned income in sufficient amount to open this new contributory IRA and not have to depend on the existing IRA A for funding. Then when the SEPP requirements are satisfied you are free to do the trustee-to-trustee transfer from IRA A into the existing, contributory,VA IRA, and initiate your distribution plan. I will assume that co-mingling “qualified” and “non-qualified pre tax” IRA assets is not a problem.Hope this helps.Jim2010-04-01 14:57, By: Jim, IP: []

L2: account fracturingNO. You cannot add to or subtract fromIRA A. You used the value of A to determine the monthly payment. You can change investments within IRAA, but take nothing out. (Audited by IRS and 99% sure of this)2010-04-01 00:51, By: TOM PALM SPRINGS, IP: []

L2: account fracturingI did not post Argument A but it suggests you can, but it is risky. It appears you can transfer all of IRA A toa new IRACand continue payments from C. But they must be $1000 a month.Argument B:The other side of the argument holds to the traditional definition of an account, whichstates that if you have an account number from which you are receiving SEPPs, you can’t transfer a portion of the balance of that account number to another retirement account with a different identifying number. This seems to meet the definition as provided in Revenue Ruling 2002-62, but the question then becomes whether the Treasury and the IRS place such limitations on an individual’s ability todiversify his or her investments. Both sides of the argument make sense. However, while Argument B seems to take on the literal meaning of Revenue Ruling 2002-62, splitting the IRA should not be considered a modification, provided the SEPP IRA assets are not commingled with other IRA assets.To be sure, you may want to consider getting aprivate letter ruling (PLR) from the IRS if the assets are of significant value. Or you may want to go along with any recommendation from your owntax professional.You are, however,allowed to transfer the full IRA balance, provided the assets are transferred to an IRA that holds no other assets and you continue the SEPP from the new IRA.2010-04-01 01:39, By: TOM PALM SPRINGS, IP: []