Rollover of Residual Funds to 72T IRA?
L1: Rollover of Residual Funds to 72T IRA?I have many clients retired from SBC and living on 72T plans in their IRA Rollovers. The IRA funds came from pension and 401k distributions. As a result of a class action lawsuit over the employees being forced (several years ago) by SBC to divest themselves of Airtouch stock in their 401k plans, SBC has recently put in $400 to $500 into the retiree’s 401k accounts. In most cases, these accounts had already been zeroed out and all funds wererolled over to their 72T IRA Rollover accounts. So, now with this new addition of funds to their 401k plans, can I roll these small amounts into existing 72T IRAs without violating the 72T rules? My thinking is that these funds should have been part of the amount previously rolled over, except for the employees being harmed by SBC’s actions. What do you think, Badger??
2003-06-24 19:15, By: Richard, IP: [127.0.0.1]
L2: Rollover of Residual Funds to 72T IRA?Whether or not they should have been part of the original plan, unfortunately they were not. Keep them as seperate IRAs – don’t mix them with the existing SEPPs.2003-06-24 19:21, By: Gfw, IP: [127.0.0.1]
L2: Rollover of Residual Funds to 72T IRA?As a follow-up, review 2002-62, Section 2.02(e)…
Changes to account balance. Under all three methods, substantially equal periodic payments are calculated with respect to an account balance as of the first valuation date selected in paragraph (d) above. Thus, a modification to the series of payments will occur if, after such date, there is (i) any addition to the account balance other than gains or losses, (ii) any nontaxable transfer of a portion of the account balance to another retirement plan, or (iii) a rollover by the taxpayer of the amount received resulting in such amount not being taxable. 2003-06-24 19:24, By: Gfw, IP: [127.0.0.1]
L2: Rollover of Residual Funds to 72T IRA?Hello Richard:
I can think of two very different interpretations on this situation:
(1) The $400 to $500; if rolled into an existing SEPP IRA does, as Gordon suggests, represent an inappropriate addition to the IRA; therefore violating RR 2002-62 and further, then potentially invalidating the SEPP program.
(2) At the time of the rollover, the 401(k) account actually consisted of two assets: (a) all of the typical stocks,bonds, mutual funds, etc. all of which had a determinable value at the date of rollover & subsequent commencement of the SEPP program; (b) a legal claim against SBC which at the time of account rollover & SEPP commencement, valuationwas not reasonably determinable and therefore was valued at zero. Subsequently, as you now know, that claim was upheld and now has a certain valuation. Therefore, receiving the $500 is not unlike a stock “rising from the ashes” & should therefore logically follow the other assets & be deposited into the SEPP IRA as the legal claim was always an asset of the originating account.
All this being said, which interpretation is correct is probably not very relevent; instead, what is the safer course of action? In my opinion, given the $$$ involved, (1) is the safer path.
2003-06-24 19:44, By: TheBadger, IP: [127.0.0.1]
L2: Rollover of Residual Funds to 72T IRA?Thanks, GFW and WJS. You two are such an invaluable resource to bounce these issues off of. On behalf of all of us out there groping in the dark, many thanks for sharing your time, talents and knowledge.
2003-06-24 23:57, By: Richard, IP: [127.0.0.1]