Move 72(t) Account
L1: Move 72(t) AccountWe have a client who has an IRA variable annuity which he has been taking 72(t) distributions from for a few years. He wants to move those funds to a brokerage account to invest in a different fashion. He needs to take distributions for a couple of more years. We are thinking he canmake this changeas long as he does not stop or change the distributions…is that correct?2009-03-25 23:49, By: ED, IP: [22.214.171.124]
L2: Move 72(t) AccountAs long as the exact annual amount is distributed each year, the 72t plan is intact. In the year of transfer, the total coming from each IRA must add up to the annual amount, so there is added risk of messing up in the transfer year.
An insurance company is also not required to offer a direct transfer. If the move is done by indirect rollover, the client will have used up the one rollover he should be saving to use as a safety valve to roll back any excess distributions that would otherwise bust the plan. So keep these issues in mind when making the decision.
If the client is getting the exception coding on his 1099R now, this transfer will probably end that and client will need to file a 5329 every year to claim the exception.
2009-03-25 23:57, By: Alan S., IP: [126.96.36.199]
L3: Move 72(t) AccountAs long as the exact annual amount is distributed each year, the 72t plan is intact. In the year of transfer, the total coming from each IRA must add up to the annual amount, so there is added risk of messing up in the transfer year.
One way to smooth this out a bit might be to request an initialdistributionfrom the new trusteein the exact amount needed to complete the correct annual SEPP distribution and then not take any more distributions for the remainder of this year. Monthly or quarterly distributions could then be resumed in 2010. This might help avoid any December “gotchas” that could occur if the final 2009 distribution was incorrect and not fixed before 2009 ends.
2009-03-27 00:10, By: Ed_B, IP: [188.8.131.52]
L2: Move 72(t) AccountLike Alan said, if you move the entire amount from the VA to a Brokerage account, and if distributions from both accounts total the exact SEPP Plan, annual distribution amount, the plan should remain “good.” However, in my experience I have never had a problem moving assets from one insurance company to another with the “trustee-to-trustee” method, which should not generate a 1099-R.
Before making the move, I would fully discuss with your client the following aspects:
1. Given the significant drop in the market over the last year or so, the Death Benefit of the VA will definitely be larger than the market value of the VA, and this would be a very significant benefit to loose. Personall, when the “tech bubble burst” in 2000 and market values dropped, I had 4 widows who were very happy their husbands’ IRA’s were in VA’s since they collected the Death Benefit which was significantly higher than the contract market value.
2. Does your client’s VA have any “living benefit riders” that guarantee a distribution stream based on a benefit base that is much higher than the contract’s market value? If so then making the transfer will be detrimental to your client.
3. How much will it cost your client in real dollars to surrender the contract? Is the contract still in the “surrender period” which will activate the CDSC provisions of the contract?
Hopefully you have fully discussed with your client these and any other considerations that may be in play before making the transfer from the VA to a Brokerage environment.
Jim2009-03-26 15:27, By: Jim, IP: [184.108.40.206]