Final year rollover

L1: Final year rolloverLove you guys’ info! Haven’t found an answer yet to this one though:
Can I rollover by Sep-IRA to another custodian in the year I turn 59.5, having also completed 7 annual 72-T withdrawals on it?
I do not need a withdrawal this year (my 59.5 year), so wasn’t going to take one. I would prefer to move my acct though to a safer fund ASAP, at a different mutual fund family. Is it safer to stay within the same fund family for the rollover in my final year, then move it to the other next year?
Thanks again for clearing the “fog”.2013-07-19 12:21, By: ImadeIt, IP: [24.116.160.15]

L2: Final year rolloverWhen you say “Sep-IRA,” which is a “Simplified Employee Pension-IRA,” I assume that your really mean SEPP-IRA for “Substantially Equal Periodic Payment-IRA” under Code 72(t). Short answer is “yes” but I would wait until after your “first modification date” to eliminate the possibility of something getting messed up.
When you refer to a “safer fund” I assume that you mean moving from an equity fund to a bond fund, the typical interpretation of your description. Your current fund family should offer the type of “safer fund” you seek and it would not require the paperwork and problems you will create by trying to change custodians as close as you are to completing your SEPP requirements. After the SEPP is really completed and if you still want to change fund families, then you are free to make whatever moves and changes you wish.
Jim F2013-07-19 15:20, By: Jim F, IP: [70.184.1.22]

L3: Final year rolloverIf by “safer fund” you mean a bond fund, be careful. Most financial advisors suggest that you invest in short-term or intermediate-term bond funds, up to about 5-year maturities. Their reasoning is that as interest rates increase in the future, for each 1% increase there will normally be a 10% decrease in the value of those funds.
Once you move your SEPP-IRA to a normal IRA, it will be “self-directed”. Since you probably have significant amounts involved, most financial advisors would recommend choosing a portfolio of specific bonds because they have specific maturities, whereas bond funds have to reinvest bonds as they mature in their portfolio. An alternative would be bond trusts where the proceeds are distributed as bonds mature, and then YOU can re-invest them in additional new bonds or trusts.
However, be careful. Over the past 5 or more years, STOCKS have been safer than BONDS. The “total returns” (yields plus growth)have been better with stocks than with bonds, and definitely better than CDs and other fixed interest investments.2013-07-19 16:02, By: dlzallestaxes, IP: [72.94.41.159]

L3: Final year rolloverSorry for any confusion… yes, I did set up a SEPP on my SEP-IRA back in 2007 (I was self employed). Don’t you love acronyms!
Not looking to go to a bond fund, justa higher ratedbalanced fund that’s less volatile. My current small fund family (Kinetics) doesn’t really have what I desire, and I’d like to go to Fidelity with a direct transfer. I will be 59.5 on 9/6/13. Should I wait until after that date, or until 2014 calendar year to be safe from any IRS scrutiny.
I’m a bit anal about details, so I’m eating up all the info I can about this. 2013-07-19 16:59, By: ImadeIt, IP: [24.116.160.15]

L4: Final year rolloverI would wait until January to be the safest, and less chance of any IRS questioning. If you don’t want to wait that long, then definitely wait until October.
I do not like balanced funds because by their “charter”, as the stocks do well, they must sell some to “balance”, and therefore buy lesser performing bonds. As stocks go down, they have to sell better performing bonds in order to buy more stocks, while they under underperforming. To me balanced funds are somewhat “counter-intuitive”.
I prefer to do my own re-balancing on my own timetable by having separate stocksand a variety ofstock funds, and bonds or bond trusts, but never bond funds.2013-07-19 17:15, By: dlzallestaxes, IP: [72.94.41.159]

L5: Final year rolloverThanks for the insights! I feared I should likely wait until next year… hopefully no crash before then. I guess I could always move to a bit safer fund within Kinetics first, then go to my preferred fund at Fidelity next year. At least it’s the same IRA custodian this year and would show no “withdrawal” on my year-end 1099R. Correct?
Blew it again by writing “balanced” fund… really meant a Morningstar5-star rated fund that remains more even-keel during down markets.
My SEP-IRA was funded with pretax $$ while I was in the top tax bracket (what a gift!), and my future distributions will be in a low tax bracket. Debt-free… don’t need much. 2013-07-19 20:10, By: ImadeIt, IP: [24.116.160.15]

L6: Final year rolloverThanks for the additional information. If you want to shift to a more conservative fund I would do it in your present fund family.
After your SEPP 72(t) is complete,after your 59.5 birthday in September, I believe that would be an ideal time to make the move to Fidelity. Then you can begin withdrawals as you need and not have a problem.
You will receive two Form 1099-R’s for 2013and it should be easy to document which is SEPP and which is a normal distribution. In fact you will begin receiving a Code 7 for “Normal Distributions” after you turn 59.5, regardless of the custodian. Just make sure the current custodian will make this change automatically, othewise you will have to direct them to make the change which they should do without question.
I had a client with a 72(t) running with Putnam Funds and they were still reporting “Code 2″ and the client was ready to set up his RMD’s at age 70.5! Putnam said they just didn’t change the reporting unless the client or I as the Rep told them to make the change, which I of course did.
God luck and I hope this information helps you with your decision making.
Jim F2013-07-22 14:48, By: Jim F, IP: [70.184.1.22]

L7: Final year rolloverJim,
You make the perfect point of why I suggest waiting until 2014.
” In fact you will begin receiving a Code 7 for “Normal Distributions” after you turn 59.5, regardless of the custodian. Just make sure the current custodian will make this change automatically, otherwise you will have to direct them to make the change which they should do without question.” Your 4th word above should be “SHOULD”, and that is the problem. Too many custodians do not properly separate pre and post 59 1/2 payment coding, and lump them together on a single 1099-R form with only 1 code, and it’s usually “2”.
As you continued ” I had a client with a 72(t) running with Putnam Funds and they were still reporting “Code 2″ and the client was ready to set up his RMD’s at age 70.5! Putnam said they just didn’t change the reporting unless the client or I as the Rep told them to make the change.”
Unfortnately these are often not done automatically because the programmers are too stupid or lazy to include date of birth/age in their calculations to determine if someone is over 59 1/2 when they are receiving payments after having been in the plan 5 years. Therefore, unless the taxpayer, or accountant or advisor, is really diligent, the taxpayer does not find out until February of the following year when the 1099-R forms are issued with the incorrect coding, and then have to jump thru hoops to get CORRECTED 1099-R forms to be issued, HOPEFULLY, or have to waste time, and possibly money for professionals, to starighten out the mess.
Waiting a few monthsuntil the next year will avoid all of this.2013-07-22 15:02, By: dlzallestaxes, IP: [72.94.41.159]

L8: Final year rolloverDLZ:
Your description is a correct analysis of “Murphy’s Law” when left un-monitored, especially by a taxpayer who doesn’t pay attention to what’s going on around him/her.
However in this case I sense that the poster is more aware of things,especially since we are giving him information of what to look out for. Yes, waiting until January 2014 will create a firm break in tax reporting years, butI don’t see waiting an extra 4 months to make the investment changes he seeks.
Knowing to look for the change from Code 1 or 2 reporting (pre age 59.5) to Code 7 when he reaches age 59.5, and a simple call to the custodian to confirm the change, should be sufficient to avoid the screw up you are addressing.
If he makes the transfer after his last SEPP Payment in September, then he will be 59.5+ when he takes the first distribution from the new custodian and they will know his age and will report Code 7 on their Form 1099-R for 2013.
Jim F2013-07-22 15:18, By: Jim F, IP: [70.184.1.22]

L9: Final year rolloverAs always, very “meaty” advice here. Thanks again for sharing your expertise!
Just to clarify, since I plan to take no distribution this year I would normally not receive a 1099R next Feb. But, if I were to xfer funds to Fidelity this year after turning 59.5, I would getone 1099R for the entire balance being transferred. Could look confusing to IRS?
So then, if I simply waituntil next year for the xfer, OR… xfer to other fund within the same “family” this year, then no 1099R would be produced for 2013? Safer?
Else… am I just a big ‘ol worrywart?
Sheesh… see the IfThenElse logic above? I guess computer programming syntax has become part of me for life.
Seriously though, you guys help a lot of people immensely!2013-07-30 17:03, By: ImadeIt, IP: [24.116.160.15]