change of custodians

L1: change of custodiansI have an IRA that I began taking 72t distributions from seven years ago. A couple of years ago, after the market crash, I split the single IRA into three separate IRA’s with different custodians in order to diversify my investments. I have continued taking the same amount of distributions collectively from the three. Is this likely to cause a problem or default the 72t exception? This year, one of the new custodians issued an incorrect 1099r showing their part of the distributions as “premature”. I used a Form 5329 to correct the 1099r but I’m concerned about an audit. Are there any private letter rulings on this matter?2005-06-21 15:30, By: lb, IP: [66.237.156.151]
L2: change of custodiansHello lb:
This unlikely / impossible to cause a default of the 72(t) exception to the 10% penalty; however, it is likely to cause an audit; either when you split the IRA into three and / or for 2004.
If you are audited, with almost certainty, it will be a corrspondence audit; e.g. a letter from the IRS asking you to explain yourself. In this case, you simply reply with a letter stating the facts and attachments as necessary.
TheBadger
wjstecker@wispertel.net
P.S. Given your facts I would guess the audit probabilty at 50/50.
2005-06-21 20:04, By: TheBadger, IP: [66.250.23.21]

L2: change of custodiansbadger-is my memory bad or do I recall from a previous post some time back to the effect that if you start a 72t with one IRA and later split that one initial IRA into 2 or more IRA’s, you have automaticallydefaulted on the 72t and are liable for the 10% penaltyon all funds withdrawn, even if you continue to draw the same 72t amount from the now mutiple IRA’s. If I am remembering correctly, would not the answer to ib be that his action did default on the 72t, but he will only have to pay the penalty if his action is caught in an audit? thanks2005-06-22 15:54, By: john, IP: [68.187.171.50]

L2: change of custodiansSorry, but you aren’t remembering it properly – SEPP assets are SEPP assets and as long as they remain part of the SEPP, they can be freely moved (based on the IRA rules) to different IRA Trustee/Custodians – just don’t add additional funds or take more than the scheduled amount.
Only disadvantage is that you will probably have to file form 5329 and that you may get an audit – but, with a good paper trail, the audit should be no problem.2005-06-22 16:03, By: Gfw, IP: [12.223.173.44]

L2: change of custodiansthanks gwf-couple offollowup questions#1-can you refer me to the plr or other source which indicates that this “breakup” of a 72t isok #2-a case study: I started a72t with one IRA at $1,000/month and been doing it for 3 years. IRA value is now $100,000 and I split-by cust. to cust. transfer- the IRA into 4 IRA’S with 4 separate custodians. Does it matter in any way how I take the $1,000/month e.g.take all $1,000 from IRA #1until it is depleted,then move to another and repeat process; take $250/month from each of 4 IRA’s, etc. Lastly, as with the “breakup” question, can you refer me to source which indicates that the manner in which the 72t withdrawals are made is not a matter of concern to the IRS and that they would accept any method of withdrawal as long as the total stays at $1,000/month. Many thanks. 2005-06-23 16:25, By: john, IP: [68.187.171.50]

L2: change of custodiansHello John:
regarding #1 — this is one of those “mutally exclusive universe” issues; e.g. Rollovers and Trustee-to-trustee transfers are governed by IRC 408(d)(3) & Rev. Rule 78-406 respectively; both of which tell us that these events are “Non-taxable” events. Since IRC 72(t) ONLY governs deferred account distributions that “are includible in gross income”; therefore IRC 72(t) does not apply.
regarding #2 —- there are numerous PLRs as well as Publication 590 tell us that when a distribution is made (or needs to be made) it matters not from which specific IRA the distribution is made.
TheBadger
wjstecker@wispertel.net
2005-06-23 17:41, By: TheBadger, IP: [66.250.23.25]