brokerage custodial account

L1: brokerage custodial account
Hi – I am going to start my sepp mid month on approx 850,000 IRA at Vanguard. 9/1/62 bday. I was reading the planning pointers and wanted to clarify a point made there. Is the term “brokerage custodial account” interchangeable with brokerage ira? (I thought custodial accounts were for minors/managed by adults) – I’m still working out the detailsbut is your advice to liquidate funds from sepp account and transfer to IRA brokerage account for distribution so that amount is exact to comply with original Sepp calculations? Thanks for your input.
2018-03-06 13:31, By: chelsea, IP: [23.124.27.133]

L2: brokerage custodial account
It’s great that you are carefully reading the planning pointers. As you can see, the term custodial account has blurred meanings, as does the use of the term custodian or trustee for the firm holding the IRA account.
Most large firms do not even use the term “custodial account” in their IRA agreement. The intention of this planning pointer is to recommend that a brokerage IRA account is used to fund your SEPP because a brokerage account can hold a wide variety of investments rather than having a CD IRA with a bank and a mutual fund IRA with a mutual fund company. Vanguard has finally decided to only open brokerage accounts as new accounts, but if you are using Vanguard you should probably directly transfer any mutual fund IRA accounts you may still have into the new brokerage IRA agreement before starting your SEPP. A brokerage IRA therefore reduces the number of accounts you need and therefore partial transfers between accounts and having multiple accounts to deal with.
This is not a requirement for a valid SEPP, just a recommendation to reduce risk and complexity within your SEPP plan.
If you decide to transfer into a Vanguard brokerage IRA account, that means your opening account balance for calculating your SEPP must use the new brokerage balance, not the balance from an IRA mutual fund account before it was transferred.
2018-03-06 20:57, By: Alan S, IP: [24.117.172.15]

L3: brokerage custodial account
I may not be as up-to-date on the Vanguard situation as Alan. I thought that the difference between these types of accounts was that a “brokerage” account was used for investments of mutual funds as well as other types of investments for an IRA, while I thought that “custodial” accounts had only mutual fund investments for the IRA.
Also, you do not have to liquidate your IRA and change your investments in the SEPP. There is no such thing as a “SEPP IRA Account”. That is merely a term that is used to denote the Universe of IRA accounts at one or more brokerages that YOU describe in your own internal papers as being included in the calculation of the value of your SEPP investments to determine your annual distributions. You do not have to send your information to the IRS, and probably not even to the brokerage firm. Based upon your being under 59 1/2, the brokerage firm will just indicate on the 1099-R distribution form to the IRS that it was an early distribution.
2018-03-07 00:37, By: dlzallestaxes, IP: [173.75.252.16]

L2: brokerage custodial account
Thank you for you advice and input. One additional question (I think!) I have not done very much trading within my IRA since I moved my 401 k years ago. When I sell funds within my sepp to create my first annual payment….I would imagine the total amounts will not be perfect bc of market fluctuations…therefore, I’ll probably end up selling off a bit more to be safe. If that is the case, where will the potential excess assets be housed if I do not open a brokerage IRA? – Do I just give Vanguard instruction to reinvest after the annual distribution? Huge thanks for the input. This Forum is invaluable.
2018-03-07 13:58, By: chelsea, IP: [23.124.27.133]

L3: brokerage custodial account
A SEPP 72-T as no different than any other IRA. It is an IRA account. Transactions within any IRA are immaterial. When you sell something, you should have a Vanguard Money Market fund into which the proceeds are deposited. Then you make distributions to either a non-retirement account at Vanguard, an electronic transfer to a bank account, or you can have Vanguard send you a check. These transaction can be done monthly, quarterly, or annually. You can sell investments within the IRA whenever it makes sense based upon the stock or bond market, or it may be a bond that matures. All that matters is that there is enough money in the account to cover the distribution.
You are even allowed to do a “distribution in kind” which involves just transferring some investments electronically from the IRA/SEPP 72-T account to a non-retirement account at Vanguard, or to another broker. If you do this, you would have to get the value of the securities transferred from Vanguard, and then also enough cash in December to get to the EXACT total for the year for your “required annual distribution”.
2018-03-07 15:57, By: dlzallestaxes, IP: [173.75.252.16]