partial transfer

L1: partial transferPlease help. Female age 58 started 72t distribution of 1,892/mo in 2004-2005 timeframe. The entire balance of the IRA has been transferred to two differenttrustees since then, but the distributionscontinued as required.In March 09 shemissed a distributionso she took two distributions in April to catch up. First question, is this a problem?
Second, in Sept 09, she did a partial transfer of her account balance to a new IRA. The intent is that this new IRA will provide the distributions going forward. This IRA owns a 10yr term certain annuity. 2nd question, is this a problem?
Third, there were two distributions paid in Sept 09, one from each IRA. I’ve been told we can reverse the payment from theprior establishedIRA but that it may still be coded as a 72t distribution. I’ve been told the distribution made from annuity cannot be reversed. Is this a problem I can help her fix?

2009-10-08 18:45, By: MRM, IP: [216.37.189.41]

L2: partial transferThe April payment as a make up for March is not a problem. The critical figure is the full annual distribution on the 1099R for all of 2009.
Next, the partial transfer. There have been a couple letter rulings busting 72t plans for partial transfers, but at this point those appear to be aberrations. But the way the annuity is paid is vital, is it distributed or paid back into the IRA? The actual distributions OUT of the IRA is the total that counts. For 2009, that total must be the same as for 2008 since she apparently is not on a recalculation plan or making a one time switch to RMD. If that total of ALL 1099R forms for all IRA accounts that relate to the 72t totals to the wrong amount, then she will have busted the plan.
As for coding, there are very few IRA custodians left that provide the exception coding for 72t distributions, so most people have to use Form 5329 to claim exception 02. Therefore, how they code it is nota factor, but the total distributions are for the year. In addition, she CAN use a rollover to roll back excess amounts within 60 days, but can only do this once per account per 12 month period. Therefore, I suggest retaining the rollover as a safety margin. Finally, IF the annuity is paid out of the IRA, any annuity paid out over 10 years or more is NOT an eligible rollover distribution. This one is 10 years, so falls into that category.
In summary, it sounds like this annuity might be escalating the annual distributions above the annual figure, but perhaps it is not too late to stop the other distributions and/or roll one of the other ones over within 60 days. From here it appears to be an issue of projecting what will be distributed and trying to control it to end up with the correct annual distribution. If her plan can be saved, she will have a similar challenge in 2010 until the modification date has passed (age 59.5).2009-10-08 21:36, By: Alan S., IP: [24.116.165.60]

L3: partial transferThank you so much!!! A little follow up if you please…
“Next, the partial transfer. There have been a couple letter rulings busting 72t plans for partial transfers, but at this point those appear to be aberrations.”
Ans: So, she’s not dead in the water with the partial transferwe’ve done?That’s my biggest concern. Should she leave it split or should we try to transfer/roll the money back. I’m afraid the releasing custodian will just send a note to the IRS in Jan saying she made a non-permissable transaction. I saw a rev ruling that says partial transfers are a violation of the series. How would you suggest we proceed on this issue? I’m so scared of making any corrective transactions because I feel like there’s bear traps everywhere for us to step in!
is (the annuity)distributed or paid back into the IRA?
Ans: it is distibuted to her on 9/21 as ACH deposit. Thiswas only distribution from the annuity.
she apparently is not on a recalculation plan or making a one time switch to RMD.
Ans: Correct.
Finally, IF the annuity is paid out of the IRA, any annuity paid out over 10 years or more is NOT an eligible rollover distribution. This one is 10 years, so falls into that category.
Ans: Yes, this is a problem. She is in a free-look period, so perhaps this is reversible. Any comment on this? If she declined the contract and put the money back into the original IRA, would that be the best option as far as avoiding a bust? Another option would be to use a 9yr period certain? This assumes that we’re potentially okay with the partial transfer, as per your comments.
In summary, it sounds like this annuity might be escalating the annual distributions above the annual figure, but perhaps it is not too late to stop the other distributions and/or roll one of the other ones over within 60 days.
Ans: If that’s the major problem you see, I’m relieved because I think we can reverse one of the distributions. I’m not sure what you mean by the rollover option as an option for eliminating her excess distribution for 2009. Please clarify.
Thank you again!!

Ans: It was distributed on 9/25.
2009-10-08 22:39, By: MRM , IP: [72.25.28.179]

L4: partial transferAlways remember that an IRA is between the Owner and the
IRA.

Are the partial transfers that were made allowable? Only the
IRS can be the judge of that.

The annuity may also be, or not be, a problem. If the annuity is a problem, the IRA owner can
possibly recover damages from the agent that recommended/sold her the annuity. The annuity would have caused no problem if it
was paid directly back to the IRA and treated as an investment – one of the benefits
of a custodial account rather than a rider attached to an annuity. Re your
question of 9 years v 10 years… a nine year annuity would produce a HIGHER distribution,
not a lower distribution.

>> Finally, IF
the annuity is paid out of the IRA, any annuity paid out over 10 years or more
is NOT an eligible rollover distribution
Never heard of this one and I don’t believe it exists. A
distribution can be rolled over (subject to the 1 rollover per year) within 60
days whether it is an annuity IRA or a regular IRA.

Bottom line, from the sounds of your post, you may be in way
over your head and you (or the owner) may want to consult a professional before
it becomes a real problem. Planning should
occur before the action, not after.2009-10-08 23:29, By: Gfw, IP: [216.80.125.206]

L5: partial transferIf we put all the money back where it was two weeks ago, can we get her out of the jam? What’s your gut on this? I’m pretty sure we can get the money back in, I’m just not sureabout the custodian’s 1099 reporting to the IRS even if we put the money back. Do you think the IRS would be ‘merciful’ in this situation if we did that? It’s obvious she didn’t take advantage of anything or benefit from these transactions. 2009-10-09 11:39, By: MRM, IP: [72.25.28.179]

L6: partial transferThere is no benefit to reversing a partial transfer just to encourage the IRS to overlook the partial if they are so inclined. In fact, in one of the adverse letter rulings, the taxpayer did exactly that as I recall, and all this created was a second partial transfer. However, using an available rollover and subject to the one rollover rule per IRA account, part or all of a distribution can be rolled back to the IRA within 60 days of receipt. For example, if the client has now exceeded his 72t plan by $150, and has a distribution of $150 or more within the last 60 days, the $150 can be rolled back to the IRA, leaving the correct amount as the amount distributed. Since this is effectively a safety valve, it is always best not to use it until you have to in order to salvage your plan.It appears that if the 10 year annuity payout itself does not exceed the correct amount, the distributions from the other remaining IRAs in the plan can be adjusted to bring the total to the correct amount. But other than a plan saving rollover, I would forget the prior partial transfer because that is a matter of record and cannot be erased.2009-10-09 19:45, By: Alan S., IP: [24.116.165.60]

L7: partial transferAs Gfw pointed out, the following statement is incorrect:
>> Finally, IF the annuity is paid out of the IRA, any annuity paid out over 10 years or more is NOT an eligible rollover distribution.The statement does not apply to IRA distributions, but does apply to distributions from qualified employer plans, qualified annuities, 403b and 457 plan distributions. Ref p 26, Pub 575.2009-10-10 01:46, By: Alan S., IP: [24.116.165.60]

L8: partial transferDoes your last post mean that she is not in violation of 72t ruleshaving the 10yrpayout annuity as herinvestment?2009-10-12 14:50, By: MRM, IP: [216.37.189.41]

L9: partial transferHe didn’t say that and based on the information that you have posted to date, no one could say that. You have not given sufficient information.

As I stated in my original reply, your best best may be to seek help from a professional that knows and understands SEPP plans. 2009-10-12 14:56, By: gfw, IP: [216.80.125.206]

L10: partial transferHow would IRS know if it wasPARTIAL tt transfer or FULL tt transfer? Custodian has told us the partial transfer is not a ””reportable event””. She has talked to CPA and he plans to file the 5329 as usual since the two custodians involved do NOT report the distributions as exceptions. 2009-10-15 19:40, By: MRM, IP: [216.37.189.41]

L11: partial transferIt isn’t necessarily recorded as a partial transfer, but every IRA Trustee/custodian annually reports to the IRS all IRAtransactions on IRS form 5498.Too many transactions reported by too many Trustee/Custodians and the red flags start popping up. And the IRA reporting systems is one of their newer systems.From all of you posts, my guess is that you are the agent that sold the annuity and you are looking at an easy way out. Am I right?2009-10-15 19:50, By: Gfw, IP: [216.80.125.206]

L12: partial transferJust looked at 5498 and I don’t see where ‘transfers’ would be reported on there. In any case, I am looking to do what it takes to avoid busting the series. Obviously, the easier route to this end the better.I think with all the good info you guys have shared the best option seems to be the 60-day rollover to avoid the excess distribution and leaving all else alone. Is that how you see it?I’ve talked to her CPA and he doesn’t know much about 72t. The whole thing is silly because she’s TAKING THE SAME INCOME! Why does IRS care about splitting the IRA? 2009-10-15 20:11, By: MRM, IP: [216.37.189.41]

L11: partial transferHere is the first paragraph ofthe instructions for 5498…The information on Form 5498 is submitted to the Internal Revenue Service by the trustee or issuer of your individual retirement arrangement (IRA) to report contributions, including any catch-up contributions, required minimum distributions (RMDs), and the fair market value (FMV) of the account. For information about IRAs, see Pubs. 590 and 560.While partial transfers aren’t directly reported, what they will report is a much lower fair market value and what another one will report is a contribution to a new IRA. 2009-10-15 20:06, By: gfw, IP: [216.80.125.206]

L12: partial transfer…in other words, IRS is likely to be able to put 2 and 2 together that the account was split. why they care, I have no idea.2009-10-15 20:24, By: MRM, IP: [216.37.189.41]

L13: partial transferI have spoken with client’s tax advisor. He suggests first, doing a 60-day rollover of the client’s September distribution back into IRA #1 to correct the course of excess distributions for 2009. Second, transfer the funds fromIRA#2 back to IRA#1 via a trustee-to-trustee transfer.
He said a less desirable alternative is to do the 60 day rollover, but not do the transfer and see what happens. He doesn’t think IRS would ever identify or look whether a partial occurred. If they did, he felt confident they wouldn’t nail client to the wall. He feels the important thing at this point is making sure the income is unchanged from prior years. Thoughts?
2009-10-15 22:13, By: MRM, IP: [216.37.189.41]

L14: partial transferHow can anyone give you any reasonable thoughts when you haven’t given any reasonable information? We have no idea of the amounts involved, the dates when all the transfers occurred, how much has been distribuited, or any other details. Way back when (much earlier posts) I suggested that you talk to someone who knows what they are talking about. You keep beating the same “dead horse” hoping someone will give you a magic bullet to help you out of a potentially bad financial position.At this point, all I will say is good luck, if you follow your current course, you may very well need it.2009-10-15 22:22, By: Gfw, IP: [216.80.125.206]

L15: partial transferI am meeting with her tax advisor today. Guess I came on this site b/c I figured two heads were better than one. She is 58yrs old. She began the series in the 2004 timeframe with an account at Firm #1. Original balance around $500k with $25k/yr distribution. She then transferred the funds in entirety over to Firm #2 in 2006. Shetransferred the funds to new account with Firm #2 in March 09 and continued the distributions on schedule for 25k.
On 9/17, client did a partial transfer of $220k to a new IRA with Firm #3. On 9/25 a distribution of ~$2,100 was paid to client out of this IRA. This transaction cannot be reversed and will be reported on 1099. Client also received a distribution from Firm #2 IRA on 9/25 for same amount. Firm #2 distributions have been discontinued. 2009-10-16 17:23, By: MRM, IP: [216.37.189.41]

L16: partial transferBecause of the duplicate distributions on 9/25, she has received 10 monthly payments for the 9 months. NO PROBLEM, so long as she takes only 2 more payments in 2009. I suggest getting the 10/25 and 11/25 payments, and cancel the 12/25 payment. This will give plenty of time for the custodial firm to get its computer updated.Also, we always suggest that payments be made near the beginning of months, or no later than the 15th so that any screw up in Dec can be corrected before year end. I suggest that you have her make that change now for Nov ( too late for Oct) while canceling the Dec payment.P.S. Why can’t the 9/25 payment be reversed ?2009-10-16 18:03, By: dlzallestaxes, IP: [72.78.110.230]

L17: partial transferWhy can’t the 9/25 payment be reversed?Answer: I’m not exactly sure. The custodian says so. I think it’s because it was an electronic funds transfer to her bank account, not a check,and because of contractual guarantee of issuer.Any ideas to deal with that?2009-10-16 21:54, By: MRM, IP: [216.37.189.41]

L18: partial transferIs that the payment from the annuity contract that you sold her?2009-10-16 22:11, By: Gfw, IP: [216.80.125.206]

L19: partial transferThe one rollover limit applies per IRA account. If there have been no prior rollovers in 12 months, then the Sept distributions from both IRA accounts could be rolled over together. Best to get an existing SEPP IRA to accept these rollovers but if neither will, a new IRA could be opened. This would be yet another partial transfer, but you already have one of these, and only a couple out of several thousands of 72t plans have been busted for partial transfers. There is no question that getting the exact annual distribution correct after the rollover adjustments is the critical element for salvaging the plan.Of course, that closes the door for any more indirect rollovers from any of these accounts for the next 12 months.2009-10-16 22:51, By: Alan S., IP: [24.116.165.60]

L20: partial transferAlan, Can you explain why she needs the 60-day rollover or how that helps her?She can get the exact distribution amount for the year by simply skipping a payment in Oct, Nov, or Dec. That isn’t a problem. The problem is she will have a 1099 for one distribution from a rogue IRA.If a 60-day rollover caneliminate this 1099, great. If not, I don’t see why its needed.2nd question is doesit make sense to full transfer the money back from IRA 2 to IRA 1 at this point.It would not bereportable eventand would restore the IRA to one account. I know this wouldn””t undo the partial but I thinkit would show good faith on her part if there were a review of her plan. It would also avoid theForm 5498 discrepancy. It would also alleviateany problemsthat might arise from her owning a termcertain annuity. (How the IRS would ever know that, I don””t know, but nevertheless…). 2009-10-17 11:16, By: MRM, IP: [72.25.28.179]

L21: partial transfer>>It would not bereportable eventand would restore the IRA to one account.It most definately would bea reportable event. The trustee/custodian for IRA 1 would have to showin box 2 of form 5498 as a rollover or direct rollover received. The Trustee/Custodian for IRA 2 would have to show the amount received in 2009and theFMV on form 5498 at the end of the 2009. As it is now, you already have multiple 5498s that will be filed – a few more may not make any difference.Anyway you look at it, you will have a lot of red flags generated just from the 5498s that every trustee/custodian will be send to the IRS in approximately 03/2010. Now combine that with multiple 1099s and you have more red flags. If I were you I would start putting togetherdocumentation outlining every transaction that occurred on this SEPP since day 1.

5498… Box 2. IRA, or a qualified rollover contribution (including a military death gratuity, SGLI payment, qualified settlement income, or airline payments) to a Roth IRA, you made in 2009. It does not show any amounts you converted from your traditional IRA, SEP IRA, or SIMPLE IRA to a Roth IRA. They are shown in box 3. See the Form 1040 or 1040A instructions for information on how to report rollovers. If you have ever made any nondeductible contributions to your traditional IRA or SEP IRA and you did not roll over the total distribution, use Form 8606 to figure the taxable amount. If property was rolled over, see Pub. 590. For a qualified rollover to a Roth IRA, also see Pub. 590.
Shows any rollover, including a direct rollover to a traditional IRA or Roth
2009-10-17 12:57, By: Gfw, IP: [216.80.125.206]

L22: partial transferYour assertion about the 5498 reporting the transfers does not concur with what I’ve been told by both custodians. They’ve both told me the transfers would not be on the 5498. Custodian #1 said only thing on 5498 would be FMV at end of 09.Custodian for IRA2 said there’d be no 5498 at all if the account does not exist at end of year. 2009-10-18 13:08, By: MRM, IP: [141.151.16.102]

L23: partial transferI stand corrected – a direct trustee-to-trustee transfer would not be reported. However, I’m also assuming that IRA #2 is the annuity where you state that the payment can’t be reversed.If it can’t be reversed, then she will receive a 1099 from IRA #2 for the amount of the distribution. Now you do a transfer from IRA #2 to IRA #1. The red flag that you will potentially raise here is that she will receive a 1099 for a distributionfrom an IRA for which the IRS has no records that it ever existed.2009-10-18 13:30, By: Gfw, IP: [216.80.125.206]

L24: partial transferCorrect. We cannot avoid two 1099Rs. Her CPA is wondering the advisability of the following (in her words): (is client comfortable) “continuing the payments in 2009 since it appears the plan is blown up and no further payments could be taken without the possibility of a penalty on them as well. You may, however, be able to start new SOSEPP in 2010.”This alludes the issue of “what’s next?”. We’ve done all we can do in putting the money back, but what’s done is done – there will be two 1099Rs. So do we move forward as through we don’t have a modificationandhopenothing is noticed, or do we bring it to the forefront and explain it was a mistakeby provider, pleading the mercy of the court? Or both?2009-10-19 20:33, By: MRM, IP: [216.37.189.41]

L25: partial transferI may have missed something along the way. Exactly why is she concluding that the 72t plan has been busted? I thought that the distributions can be controlled such that the 2009 distributions will total those of the prior years, and that there is nothing wrong with the original calculations?? The number of 1099R forms issued could result in an IRS question, but does not in itself cause a plan to be busted.2009-10-19 20:42, By: Alan S., IP: [24.116.165.60]

L26: partial transferAlan… great question. Maybe it is a case that the IRS may look and all the details haven’t been posted to this forum. I’ll back up to a statement that I made earlier – based on the current status and what we know, MRM and the “adviser” should be constructing a history of the plan so that all transactions can be justified if there is an audit. I just don’t believe that we are getting all the details.Based on the previous posts, if MRM and the “adviser” allow the plan to merely be bust and start a new plan, the client will merely be taken to the cleaners and if someone counsels the client and sees what has been done, MRM and the “adviser” could have a different set of problems.2009-10-19 21:00, By: Gfw, IP: [216.80.125.206]

L14: partial transferThoughts?Yes… my thought is that this lady desperately needs the counsel of a CPAwho is fluently conversant in the rules and regs of72t plans, whichis the subject at the root of her current dilemma. Why she continues to work with a CPA who “doesn’t know much about 72t plans” is absolutely beyond me. This is fully equivalent to working with an attorney who knows little about wills or trusts on your estate plan. It is high time that she found someone who does know this subject and rather well, at that.2009-10-16 04:12, By: Ed_B, IP: [98.246.93.80]

L15: partial transferWith respect to your rollover question, by all means if you can simply get to the correct amount by stopping a distribution, do that. Rollovers are a refuge of last resort and should be saved for emergencies, given that they are limited to one per account.But keep my post in mind in the event a rollover DOES turn out to be a last resort.2009-10-17 18:32, By: Alan S., IP: [24.116.165.60]

L16: partial transferDavid and Alan: You both indicated the following: “Because of the duplicate distributions on 9/25, she has received 10 monthly payments for the 9 months. NO PROBLEM, so long as she takes only 2 more payments in 2009.”Yet CPA seems to be suggesting that there is a modification because the client did not strictly keep the monthly distribution the same throughout 2009. 2009-10-19 20:50, By: MRM, IP: [216.37.189.41]

L17: partial transferMRM… this lady does need help., but probably not from either you or the CPA. She needs help from someone taht can give her compenent advice because they know what a SEPP plan is. From all teh posts that you have made, it is pretty clear that neither you, nor theCPA adviser that you keep mentioning have that understanding.This post is going nowhere and it is time toclose it down.

2009-10-19 21:04, By: Gfw, IP: [216.80.125.206]

L18: partial transferI think that the taxpayer, and her CPA, neither of whom know what they are talking about, are under the misapprehension that because she changed accounts, and/or brokers, and/orreceived a duplicate payment, and/or she would stop one of the coming payments, that any of these would constitute a “modificatio” or “bust the plan”. They are completely wrong because as we have stated numerous times in this thread NONE OF THESE CONSTITUTES A MODIFICATION per the IRS regulations. Only a change in the ANNUAL AMOUNT is a modification. I hope that you, the adviser, and the CPA have adequate professional liability insurance to cover any malpractice suit for giving advice on something none of you seems to understand, nor wants competent advice about from several knowledgeable professionals who have answered you on this list-serve.2009-10-19 22:23, By: dlzallestaxes, IP: [72.78.110.230]