Has my 72t been violated

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L1: Has my 72t been violatedI have taken SEPP since2001. Last year (2004) the custodian represenative sold me 2 fixed income annuites for 6 years, taken froma 427,000 balance. The remaining balance isin a CD ladder and cash. I mentioned to the custodian rep. that before he sold me the annuities this account was a 72t. I received a letter from the IRS in NOV 2005 that the 2004 1099r was coded a “1”. The IRS requested a letter with the custodian letterhead stating I”m taking SEPP payments (which I am) or have the custodian change the code back from a “1” to a “2”. The custodian would not provide a letter or change the code. They suggested I use the 5329 form. The IRS would not accept the 5329 form alone. The custodian said they would have changed the code from a “1” to a “2” last year if it had been caught by the tax preparer. The 2005 1099r is coded a “2”. The custodian said by purchasing the annuities ittriggered a distribution — the code “1”.
Has my SEPP been violated for purchasing fixed income annuities with an insurance company sold by the custodian rep.?2006-02-11 00:01, By: RV, IP: [208.178.240.148]

L2: Has my 72t been violatedIf the fixed annuities were used as investments of the SEPP and were funded with assets originally allocated to the plan, then there should be no problem as the fixed annuities merely represent an investment just like a mutual fund, CD, etc. – all SEPP funds do not have to be invested with the same Trustee/Custodian.
If, on the other hand, you took distributions from the fixed annuities over and above the normal/planned SEPP distributions, then you have a problem. Can you provide more details on the annuities?
2006-02-11 05:55, By: Gfw, IP: [172.16.1.72]

L2: Has my 72t been violatedLast year when interest rates were 1% in money market funds and CD””s, the Fidelity rep. said there was a product–SPDA annuity. The annuities I purchased, through the Fidelity rep., were GE Capital Provider Advantage, now Genworth Financial. The annuities are accruing interest weekly and the balances are onlinefor me to keep track of within my account at Fidelity. The first year I received 5%, the 2nd 4%, and the remaining years could not fall below 3%. There is a provision that once a year 10% of the balance could be moved into my cash account within the SEPP plan. However, I do not need to move any 10% distributionswithin theSEPP plan, nor have I. I just let the annuities accrue interest. I have cash and laddered CD””s for the remaining years 2006-2010 where I turn 591/2.
Also, I remember a Fidelity rep. asking me which account the annuities were purchased from, I said from the SEPP account as though that wasan issue.
Another Fidelity rep. said I would have to pay 10% penalty and the IRS says I owe 3,795 plus interest for 2004.2006-02-11 11:52, By: RV, IP: [208.178.240.168]

L2: Has my 72t been violatedTo be totally sure we understand the history here:
1) Prior to 2004 your SEPP emanated from a single Fidelity IRA account
2) Was the SEPP distribution the same amount each year since 2001?
Are the annuities in an IRA annuity account separate from your original account or are they just contracts within the same account under the same IRA account number?
Was there a 1099R generated for the annuity purchases or not? Did you report them as a rollover on your 2004 return? In other words, was your total taxable distribution in 2004 any different than in prior years, other than being coded “1”?
If there was no modification because Fidelity properly understood this was a SEPP program, then they need to cooperate by providing the IRS with the letter. I say this even though the IRS instructions for 2004 1099R forms initially incorrectly omitted SEPP payments from a “2” code, and they have corrected the 2005 instructions. If this is the case, communication should clear it up.
On the other hand, if there was a misunderstanding and SEPP busting distributions were made, then you havea major problem with Fidelity. Please respond with the details above so we can discern the difference.
If the IRS contributed to this problem by mis handling their 1099R instuctions for 2004 resulting in “1” codes going on 1099R forms, and they are just now looking at the 2004 returns and taking the position that they will not accept a taxpayer 5329, the IRS is making life difficult for both taxpayers and IRA custodians. I hope this is not the tip of the iceberg for the 2004 year.2006-02-11 15:19, By: Alan S., IP: [24.116.165.157]

L2: Has my 72t been violated1) Prior to 2004 my SEPP emanated from a single Fidelity IRA account.
2) The SEPP distribution has always been the same amount each year since 2001.
— The annuities in an IRA annuity account are separate from the original account.
–A 1099R was not generated for the annuity purchases. Nor were they reported as a rollover on my 2004 return. Therewas nothing differentin my total taxable return for 2004 other than being coded “1”.2006-02-11 19:39, By: RV, IP: [208.178.240.138]

L2: Has my 72t been violatedOK then, you are perfectly fine. The direct transfer to the new annuity accounts did not require a 1099R because they were between IRA accounts. Your SEPP universeis now comprised of these3 IRA accounts.
I am surprised at Fidelity’s attitude, especially since their initial handling of this matter was correct and appropriate. I think you need to talk to someone else there, more expert in tax and specifically 72t issues, and get them to write that letter. Thenew annuities are NOT a distribution, they did not even generate a 1099R.
As I understand it, the IRS recognized after they printed their 2004 1099R instructions, that they omitted the SEPP plans from the list of items to be coded “2” for the exception. They then apparently issued a corrective memo, which seems to have escaped many of these firms, and resulted in many of them issuing the “1” coding. They are both partially at fault, but Ibelieve you should start with Fidelity since they created these accounts and you are the client. This is also the IRS suggested solution, so they have already bought into it. Good luck!2006-02-11 22:55, By: Alan S., IP: [24.116.165.157]

L2: Has my 72t been violatedRV:
Just for the record, please clarify who your IRA Custodian is. You mention “Fidelity” but there are more than one. Is it “Fidelity Investments” or some other firm?
Jim2006-02-13 10:46, By: Jim, IP: [70.184.1.35]

L2: Has my 72t been violatedJim,
My IRA custodian is “Fidelity Investments.”
RV2006-02-13 18:02, By: RV, IP: [208.178.240.168]