Rollover of existing IRA rollover had elected 72t
L1: Rollover of existing IRA rollover had elected 72tI am 50 years old and set up an IRA rollover a few years ago and elected the 72t and set up equal periodic payments toreceive until age 59 1/2. Late last year when the markets were falling apartI split the IRA rollover and moved more than half of it to another financial institution. Basically I was trying to stay under thefederal guarantee levels. However,I was told recently that a recent new IRS private ruling will cause payments to be subject to the 10% penalty because the IRS views this partial rollover out of the original 72t IRA rollover as a prohibited transaction. Does anyone know if this is true and since I still have10 more years of having to take the payments I am not sure what I should do going forward? If I continue at the current level of withdrawals I may risk having to pay the 10% penalty after the fact. It would be nice if I could just transfer it back but I was told that was not allowed either…any advice?2009-07-07 21:34, By: jay, IP: [22.214.171.124]
L2: Rollover of existing IRA rollover had elected 72tIf you are talking about a “partial rollover”, there have been excellent comments on this website about the fallacy in the IRS’ recent decision.
But, on the other hand, when you set up the SEPP 72-T “PLAN” a few years ago, did you actually “document” what you were doing ? Did you indicate the IRA Account(s) being used, the Balance(s) and Date being used, the Interest Rate being used ( at no more than 120% of the federal rate), and then calculate your ANNUAL DISTRIBUTION amount based on all of these factors and your age ?
Or did you just say to yourself, or the broker, that you were setting one up with an annual amount that YOU decided you wanted or needed ? If the latter, you probably had an illegal SEPP 72-T from the being, andwould therefore be subject to the 10% penalty on all distributions from the beginning.
Give us all of the facts, and we can then better answer your question.2009-07-07 21:57, By: dlzallestaxes, IP: [126.96.36.199]
L3: Rollover of existing IRA rollover had elected 72tthanks for response. Yes when I set up IRA rollover in 2007 I chose the fixed amortization period and documented interest rate (I used 6% which at time was within the 120bp), life expectancy (36 years as i was age 48) and worked off of IRS bulletin to come up with an annual amount. The total of the IRA rollover at the time was around $1.0 and last year I rolled over a little more than half to another brokerage account. I took the same 72t distribution in 2009 that I did in 2008 and 2007 and now I am worried I have to pay the 10% penalty on the distributions and I have no idea what to do going forward.2009-07-07 22:06, By: jay, IP: [188.8.131.52]
L4: Rollover of existing IRA rollover had elected 72tYou didn’t say, but then I’m guessing that your first distribution occurred in either September or October of 2007 since those are the only 2 monthsduring 2007 where6% (6.13% in 08/2007)would have been an acceptable interest rate. Am I right?2009-07-07 22:13, By: Gfw, IP: [184.108.40.206]
L5: Rollover of existing IRA rollover had elected 72tI used a rate from a rev rul 2007-2 table 5that was from jan 2007 and set up the payments to be annual. The rate on the table was 5.6% 2009-07-07 22:21, By: jay, IP: [220.127.116.11]
L6: Rollover of existing IRA rollover had elected 72t5.6% is less than 6%.
The 120% mid-term rate in January, 2007 was 5.51%. If the first distribution occurred in January, the maximum rate would have been 5.70% (12/2006) – if you used 6%, you could have other problems in addition to the partial rollover.
Perhaps before any additional “possibilities” are provided, youneed to provide accurate information: 1) Date of birth; and 2)Date of the 1st Distribution.2009-07-07 22:40, By: Gfw, IP: [18.104.22.168]
L7: Rollover of existing IRA rollover had elected 72tNow I am confused…I thought rate of 5.6% from the jan table would allow me to use 6% as long as the interest rate was not more than 120 percent of the 5.6%?
I did an annual distribution end of jan 07 and then again jan 08 and jan 09
DOB 1/11/592009-07-07 22:51, By: jay, IP: [22.214.171.124]
L8: Rollover of existing IRA rollover had elected 72tcorrection – sorry distribution was taken in june of 07 to start2009-07-07 23:05, By: jay, IP: [126.96.36.199]
L9: Rollover of existing IRA rollover had elected 72tJay,
The problem is that the rates shown in most of the calculators ALREADY include the 120% factor, meaning that you cannot take the published rate and increase it further by another 20%. For a June, 07 start date, the max allowable rate was 5.56%. You might be OK if you can locate asomewhathigher beginning account balance between 12/31/06 and 5/31/07. The stock markets trended up from Feb, 07 through the end of May, so using a later date could give you the higher balance you need to offset overshooting the interest rate. 2009-07-07 23:28, By: Alan S., IP: [188.8.131.52]
L10: Rollover of existing IRA rollover had elected 72tthanks. balances were much higher from jan to july so I will have a look at. Do you have any comments on my partial rollover of the 72t rollover…….I read on this website a lot of information on and some say it is not a problem2009-07-07 23:34, By: jay, IP: [184.108.40.206]
L11: Rollover of existing IRA rollover had elected 72tAgain, what you are really saying is that you have no documentation to back up your plan. Changing the initial balance doesn’t change the maximum interest rate.
Based on everything you have posted so far, I think you need to spend a few dollars and have a private consultation with a tax-adviser before you get any additional problems.
There are articles in the articles section that outline consequences of partial rollovers – there is nothingthatwill give you what you are looking for if you get into an audit. If you do, the interestrate, etc will almost certainly be part of the review.
Suggestion… go back and review allyour documentation(if it exists)and come back and post again when you have the facts and details.2009-07-07 23:42, By: Gfw, IP: [220.127.116.11]
L8: Rollover of existing IRA rollover had elected 72tWrong. The rates that I used were the published 120% Mid-Term Applicable Federal Rates. You can’t then take the 120% rate and multiply it by 120%.
For a June initial distribution, the max rate was 5.56% – still a long way from 6%2009-07-07 23:08, By: Gfw, IP: [18.104.22.168]
L9: Rollover of existing IRA rollover had elected 72tsorry – instructed in june and did in july where rate is 5.96%…had to go back and dig it out. assuming rate ok – how about the rollover…problem or no?2009-07-07 23:13, By: jay, IP: [22.214.171.124]
L10: Rollover of existing IRA rollover had elected 72tI won’t comment on the partial since you seem to be revising everything as you go to suit your question. We have moved from a Jan ‘1st distribution’ to June and now to July.
The max rate for a first distribution that occurred in July 2007 would have been5.59% – do you want to go back and guess again?
Perhaps you need to go back and figure out what you actually adopted, when you adopted it and what documentation that you have to back up the details of the plan that you think you have.
2009-07-07 23:23, By: Gfw, IP: [126.96.36.199]
L11: Rollover of existing IRA rollover had elected 72tPosts are crossing in cyberspace right now.
With respect to the partial transfer, the IRS released one bizarre ruling two years ago that they never explained, and a few weeks ago issued another which is not very clear. That’s two adverse rulings over a period of time when 72t participants have dozen thousands of partial transfers, some unreported and others reported as rollovers. That is not enough to warrant panic over past partials, but probably enough to restrict future ones unless the risk to reward factor appears very low. In your case, what’s done is done with respect to the partial, and you probably do not have anything to worry about on that end. With respect to the original calculations, it would be wise to get the documentationin order so that the account balance, max allowable rate etc conform to the amounts you have taken out. This is probably doable, but we don’t know for sure.2009-07-07 23:39, By: Alan S., IP: [188.8.131.52]
L12: Rollover of existing IRA rollover had elected 72tI appreciate your insight in the history of cases and I will take your advice on getting the paperwork in order. It looks like might interest rate is a little high but I also think my original balances were low on the calculations so I will firm up the documentation and I really appreciate you weighing in on the matter, Thank you. jay2009-07-08 01:30, By: jay, IP: [184.108.40.206]
L13: question on IRS stance if rate rejectedIf for some reason the IRS reviewed an interest rate assumption and found it to be wrong when calculating the annual amount of the 72t would their tendency be to disqualify the entire plan and impose the 10% tax and penalty on everything withdrawn? Or if the difference in rates was very small would they recalculate with the correct rates and impose the tax and penalty on the difference….for example if I used the wrong interest rate and yielded a $52,000 annual 72t amount and the IRS did the calculation and calculated $50,000 would they disqualify the entire manuever in the first place or would they just penalize me on the delta. Any insight or experience would be appreciated and I am sure it is not black and white.2009-07-08 01:43, By: jay, IP: [220.127.116.11]
L14: question on IRS stance if rate rejectedIt is black and white with respect to how a modified plan is treated. The entire amount of penalty free distributions taken from the beginning of the plan are subject to penalty plus interest. There has never been any inclination to penalize just the difference.
What is less certain is your ability to retroactively re document your plan. The thinking here is that with tax law, intent means nothing if it produces the wrong result. However, since no pre approval of assumptions is needed for a 72t plan, your calculations can sometimes be changed as long as they are changed within the parameters of allowed 72t methods.2009-07-08 04:31, By: Alan S., IP: [18.104.22.168]