IRA severe hit

You are here:
< Back

L1: IRA severe hitI have had 72T equal payments for aprox 5 years now and when my 72T was initially established, it was very 30% higher. 72T distributions at that time as well as other pensions were calculated on the basis that the original amounts would either remain the same or increase, not this severe loss. 2008 was an unprecedented year with financial bankrupcies i.e. Lehman Brothers and loss of bank and corporate dividends, and deleveraging, thus reducing ira holdings severely. In addition, at one point, money market funds looked like they would break the buck and now are producing lower yields. At one point during the panic, I partially transferred some money to a 6 month bank cd (rollover) so that the money was protected by FDIC insurance since sipc doesn’t protect money market funds only cash in transition to buy securities. I can transfer this money back into the account when the cds matures. This was before the government guaranteeing the buck in broker money market funds (if they decided to participate) which expires at the end of april. In fact currently, the 6 month cd rates are higher than the money market fund in Fidelity due to the Fed dropping the interest rate to 0%. Is there some allowance in the code for the IRS to view severe market deterioration as a reason for temp distribution? I am sure I am not alone in this. On average, everyone lost aprox 30%. In my opinion, the irs shouldpermit investors to do everything they can to protect their assetsin order to continue their 72T.2009-03-26 19:07, By: JJ, IP: []
L2: IRA severe hitNo, the IRS does not allow any penalty-free acceleration of distributions. However, losses in stocks and other investments in IRAs will ultimately save taxpayers 25%-35%, or more, in taxes because of the reduced amount to be distributed. And if your accounts run out of money sooner than originally calculated and expected, the IRS will not require you to continue withdrawing the same annual amount after the balance reaches -0-.2009-03-26 19:42, By: dlzallestaxes, IP: []

L2: IRA severe hitAs to your basic question, there is no IRS relief for 72t plans as a result of the financial crisis.
However, I am somewhat concerned about your IRA CD that is not part of your 72t plan. You are only allowed one rollover per IRA account per 12 month period, and therefore it matters whether you created the IRA CD by rollover or by direct transfer. If done by rollover, you cannot roll it back until 12 months from the first distribution. And if done by transfer, you may have to use your one rollover to get the funds back to the original IRA if the bank does not offer a direct transfer facility.
You may have noted PLR 2007 20023, which busted a 72t plan due to a partial transfer, which is what you did. However, there has been no follow up on that inexplicable ruling, so I would not worry about that issue. Just be careful how and when you move the funds back to the original IRA or to another bank or IRA custodian due to the rollover rules.
Perhaps one reason thatthere has been no relief for 72t plans is that there already existsthe one time switch to the RMD method, that would sharply reduce the amount you are forced to distribute each year. And one would not expect to have to take more money out barring a job loss. That’s where there might have been some relief offered, but unfortuneately, it has not surfaced yet.

2009-03-26 23:43, By: Alan S., IP: []