Account number change

You are here:
< Back

L1: Account number changeI have 3 separate IRAs working as 72(t)s with E*TRADE. I currently manage the money in all 3 but told a financial advisor I would turn one over to him to see how he could do with it. He said E*TRADE creates a new account and moves all the money into that account so he can have total access. I think another reason is so the new numbers that prefix the account designate it as a managed account. I said that sounds like a potential 72(t) bust to me.I thought I would reach out to the team here for someguidance. Anyone know what the IRS call is on something like this?
KM2008-05-28 03:03, By: KennyMike, IP: []

L2: Account number changeDue to PLR 2007 20023 per link attached, it may indeed be a busted plan, although the PLR looks to be an aberration at this point.
Note that in the PLR, a partial transfer of a SEPP account balance was deemed a modification. In your case, even though you have 3 IRA accounts, they evidently compose a single SEPP universe, ie a single SEPP plan. So even though you intend to transfer one of these account in full, you are still transferring only a part of your full SEPP balance. You probably would be incrementally safer to transfer all 3 accounts than just one of them. That said, there has been no IRS follow up, and there is no evidence that they have busted any other plans. There are probably thousands of plans that have done transfers over the years, and only this ONE appears to have been targeted. You can see from the link that the IRS was unable to provide a lucid explanation. Until they do, I guess the safe conclusion is that this move would indeed result in a very slight risk of busting your plan. I also believe that the unique prefix reflects an advisory system that is not capable of restricting itself to only part of an account number, so that eliminates the idea of transferring all 3 accounts into the system unless you want to pay the fee for all the assets.2008-05-28 17:07, By: Alan S., IP: []

L2: Account number changeThank you for your reply Alan. There are actually 4 IRAs (one non-72(t) in case of emergencies) and I never declared them as a universe inmy documentation. I meant for them to stand alone so as not to confuse things.They aren”t automatically considered a universe are they? The advisor has come back and said that his team says the change is okay. It sounds like maybeit should be okay since I”m not changing custodians and keeping the account balance as is. Any other thoughts?
KM2008-05-28 19:11, By: KennyMike, IP: []

L2: Account number changeEither you have one 72t plan based on the total account balances of the 3 IRA accounts or you have 3 totally independent 72t plans with annual distributions coming from each account based on the assumptions adopted for each. This latter arrangement would be very unusual, but would be acceptable. Your documentation should make it clear which of these two ways you have gone.
If the 3 are considered combined, you can take the annual distribution in any combination you wish from the three accounts.
If you in fact do have independent plans, then the transfer would be a total transfer of one plan and would be more secure than a partial transfer because the PLR was a partial transfer. Also, if you busted any one of the accounts, the others would not be affected.
Has anyone reviewed your documentation to date? There is some flexiblity to change things if you started this year, but otherwise we can only hope that your have not already run afoul of the rules in some way.2008-05-28 21:10, By: Alan S., IP: []

L2: Account number changeAlan,I did keep everything separate with appropriate documentation, hiring The Badger to set up my first 72(t) and document it for me.
I set up the original IRA and nicknamed it Receiver. This account received any monies sent to me by the corporation during the severance process and would never be a 72(t) so it would also never bust if monies go in or out. This bucket still contains enough to cover an emergency where I would need to take the IRS 10% penalty hit if necessary. Over the past year I”ve started 3 new IRAs by moving money out of the Receiver and created SEPP plans with documentation specific to each. Each of these plans has a specific purpose (monthly living expenses, taxes)and come out with one payment annually. The SEPP payment falls into an E*TRADE savings account that makes monthly transfers to my corner bank for my living expenses. This may all sound quite unorthadox to the professional such as you, but after reading about plan setup through these forum threads it seemed like a good way for me to comfortably keep my ducks in a row.So it looks like I can allow E*TRADE to take control of one 72(t) and not cause a bust by just recoding the account number.Thank you again for your time and guidance. This forum is a person”s greatest resource for 72(t) information!KM2008-05-29 04:13, By: KennyMike, IP: []

L2: Account number changeKennyMike:
From your last post it sounds like you have a very logically thought out plan. Personally I have more comfort from using multiple,independent SEPP accounts than combining several accounts into one SEPP Universe. It may create more paperwork but you have a clear picture of what you have. And, like Alan said, if you screw up one you don”t jeopardize the other two.
Jim2008-05-29 07:41, By: Jim, IP: []

L2: Account number changeOK, as it turns out you are in better shape to transfer the one IRA to the advisory platform because it is one of 3 independent SEPP plans. Therefore, you are making not a partial transfer, but a total transfer of that particular SEPP plan. In this situation, there is no reason at all to worry about busting any of these plans due to the transfer as long as there is no error made in your associated distribution regimen.
Noting that each of your plans is to funda certain kind of expense, it is worthwhile to note that while an expense can grow to the point where one of these accounts can no longer completely fund it, that will have no impact on your SEPP plan. All it would mean is that you might have to change your budgeting around somewhat allocating some of the other distributions to pay that expense. In addition, you still have the emergency fund IRA.
Finally, if the advisory account bills out a wrap fee (commissions, management and trustee fee) on a % basis as most of them do, you could opt to pay it from your taxable funds if you thought you might be able to itemize it as a misc itemized deduction. The IRS approved that in PLR 2005 07021. If you have it deducted from an IRA, then no itemized deduction is possible, although it would not be a reported distribution and therefore would not impact your SEPP other than reducing the IRA account balance. 2008-05-29 14:42, By: Alan S., IP: []