Need remedy for possible busted 72T
L1: Need remedy for possible busted 72TI setup a SEPP for a client a couple years ago and they are receiving annual distributions from the SEPP every February. This past March, they received an additional distribution from their SEPP IRA. It turns out that the mutual fund company closed one of its funds (which the client owned) and distributed any monies in that fund to the shareholder.
A few questions on this case. First, can they roll the money back into the IRA (they are within the 60 day rollover period)? Second, if they did put the money back into the IRA, what steps should they take in order to make sure that the IRS doesn”t penalize them for this transaction? Lastly, what should they do if the fund company does not allow them to roll the money back into the IRA? Any help on this situation would be much appreciated.2008-04-24 04:46, By: PAS broker, IP: [22.214.171.124]
L2: Need remedy for possible busted 72T1. Yes you can Rollover within 60 days and prevent the plan from busting.
2. Indicate on the 1040 for 2008 that the funds were rolled over and keep good records. Documnet every thing.
3.If the fund won”t let you, Rollover to a different fund/custodian/trustee2008-04-24 11:21, By: jevd, IP: [126.96.36.199]
L2: Need remedy for possible busted 72TThe other question I would ask the custodian is– Why didn”t they just put the money in the client”s money market account? You would think that they”d know that it is very dangerous for them to distribute IRA funds on their own while they are under orders to do specific 72t disbursements. I think they have some explaining to do, and they should be told that they may be held responsible if the clientends up having an IRSproblem with this in the future. Just my opinion. KEN2008-04-24 13:00, By: Ken, IP: [188.8.131.52]
L2: Need remedy for possible busted 72TI suggest that you also contact the Compliance Office of the mutual fund company to inform them what happened so that they can revise their procedures to accommodate these types of situations involving SEPP 72-T plans.
By the way, this should never happen for ANY IRA because if the taxpayer is < 59 1/2, it would be subject to a 10% penalty in all situations, so the fact that it is a SEPP 72-T is a secondary issue to that fact.2008-04-24 13:07, By: dlzallestaxes, IP: [184.108.40.206] L2: Need remedy for possible busted 72TThanks to everyone that replied. To answer some of the questions...I''m don''t know why they didn''t just put the money into money market. Their explanation/excuse was that they didn''t have the authority to make a transaction like that without the client''s permission. You would think that moving it to money market would be a lot less litigious than making a pre-mature distribution from their IRA, let alone SEPP. I spoke with the mutual fund company yesterday and they informed me that the 72T is now busted, and even if they rolled the money back into an IRA with them, it would still constitute a penalty. Are they correct? From previous posts and replies it seems as if he could roll the money back in within 60 days. Can anyone else confirm that he could just roll it over to another mutual fund or custodian? 2008-04-25 04:15, By: PAS_Broker, IP: [220.127.116.11] L2: Need remedy for possible busted 72TIf the mutual fund company is the custodian, I''d ignore their "determination" that it is busted (because of their ineptness) and roll it back before the 60 day window closes. You can then argue about it later. Also--Ask them what they do with dividends issued from theclients IRA investments. Are they mailing them to the client as well, or either reinvesting them, or putting them in his money market account. Their answer sounds ridiculous. I think someone further up the food chain at that mutual fund company needs to be told this "story". When/if they send you a code "1" 1099-R in 2008, you just fill out the 5329 form claiming the exemption of ''2''. The next step might be to find a new custodian, and do direct transfer of the entire SEPP IRA portfolio (as is)to another custodian who knows what they are doing, and continue the 72t payments with them. Just my opinion--I''m not an expert.One other comment to DLZ.. is that I feel the 72t may not be "secondary" to being under age 59 1/2, since the penalty incurred on an active 72t is 10% on all distributions to date, and if an errant payment was made to a person under 59 1/2 and not on a 72t plan, only that payment would owe the 10% penalty. In addition, many people are past 59 1/2 while their active 72t is still running, so that age boundary is not the only determining factor for penalties on IRA withdrawals. My 72t will end when I am 61. KEN2008-04-25 05:33, By: Ken, IP: [18.104.22.168] L2: Need remedy for possible busted 72TIf the mutual fund was Vanguard, I can get it to the right people to review the situation. ( My daughter has been there for 15 years.) If another firm, definitely go "to the top" with this issue.2008-04-25 10:12, By: dlzallestaxes, IP: [22.214.171.124] L2: Need remedy for possible busted 72TBTW...the mutual fund company is Rydex Investments.Does anyone know where I can find it in writing that a client can roll their money back into a 72T IRA within 60 days without penalty even if that distribution caused an overpayment of the SEPP for that year?2008-04-25 11:37, By: PAS_broker, IP: [126.96.36.199] L2: Need remedy for possible busted 72TTry IRS Pub 590 "TRADITIONAL IRAs. SEPP 72_T is merely a special procedure whereby you segregate certain Traditional IRA acounts for the purpose of avoiding the 10% Penalty for Early Distributions from IRAs < 59 1/2. Technically, a "rollover" is defined as "TAKING RECEIPT OF ELIGIBLE RETIREMENT PLAN ASSETS FOR UP TO 90 DAYS BEFORE REINVESTING THE SAME ASSET IN ANOTHER ELIGIBLE RETIREMENT PLAN". Rydex might stick to exact wording, and insist that they cannot put it back into the SAME account. Then ask them to put it into a new IRA account, which you will designate (retroactively since it didn''t exist before) as part of your SEPP 72-T universe. A few days later you then instruct them to TRANSFER the funds back to the initial IRA account. If they won''t do that, have your accountant contact IRS PPS (Practitioner Priority Services), and if that doesn''t work, then IRS TAS ( Taxpayer Advocacy Services). These avoid the cost of a PLR (Private Letter Ruling). Inform Rydex IN WRITING that you are holding THEM responsible for reimbursing you for all professional fees incurred to straighten out THEIR ERROR, as wel as any taxes, interest or penalty. Offer to let them have THEIR legal counsel/Compliance Dept. straighten it out to save those costs. 2008-04-25 13:25, By: dlzallestaxes, IP: [188.8.131.52]