Setting up a 72t plan
L1: Setting up a 72t planCorrect me if I’m wrong, I gather from reading the IRC 72(t) that you can use the aggregate total of all your IRA’s to set up your distribution. So, if I am correct, say you have 5 different IRA’s with different investment companies that you based your SEPP distribution on and you are only taking money from one of the accounts, can you do a trustee to trustee rollover and combine them at any point during the 5yr min (assuming the 59 1/2 age requirement is also met) without causing problems invalidating the plan?2011-03-20 14:50, By: Kaye, IP: [188.8.131.52]
L2: Setting up a 72t planYou can aggregate all of your IRA accounts together for purposes of determining the initial distribution amount. However, any account that you use is part of the SEPP plan and may not be used for other purposes. In terms of doing apartial transfer between accounts, the IRS has ruled against the taxpayer twice for making a partial transfer – it busted the SEPP.Before you begin, read our Planning Pointers athttp://72t.net/72t/Planning/Pointersand consider all of the pointers especially dividing the account and using a brokerage account.2011-03-20 15:34, By: Gfw, IP: [184.108.40.206]
L3: Setting up a 72t planOnly the original 5 IRA accounts – no additions other than earnings-but reducing the number of IRA’s to 4 by trustee-to-trustee transfer.2011-03-20 15:54, By: Kaye, IP: [220.127.116.11]
L4: Setting up a 72t planThat’s still a partial transfer, so there is a very small degree of risk as gfw noted. See PLR 2007 20023 which the IRS has still not rationally explained. If you want to proceed, the small amount of risk is further reduced if you do the transfer by direct transfer since these are not reported on 1099R or Form 5498 so the IRS does not see these directly. It also does not count as a rollover with respect to the one rollover limit.2011-03-20 16:05, By: Alan S., IP: [18.104.22.168]
L2: Setting up a 72t planKaye:
Is there a reason why these accounts cannot be combined or directly transfered to your custodian of choice before the SEPP is set up or has the SEPP already started? In general, there can be enough problems with SEPPs that the fewer moving parts or complications, the better. There are enough tripping hazards inherent in a SEPP that creating additional ones just raises the odds of inadvertantly busting the plan. Simpler is very often better.
2011-03-20 17:37, By: Ed_B, IP: [22.214.171.124]
L3: Setting up a 72t planToo late, already done. Did it 3 years ago, before I knew about this site. Just checking to see if there was any problem with consolidating since all of the monies in all of the accounts were included in the original distribution calculation. I figured it wouldn’t matter where they were as long as I didn’t contribute anything else and I didn’t take more than my annuitized method (the method I originally selected). I’m not running out of money or anything, just considering less time involved in tracking my allocations to keep my portfolio within the IRA balanced.2011-03-20 18:01, By: Kaye, IP: [126.96.36.199]
L4: Setting up a 72t planOh, OK. Yes, this site is a terrific resource for anyone looking to start or maintain a SEPP. I was fortunate to find it while I was still in the process of setting up my SEPP and got many good tips that enabled me to go through the process with confidence.
I agree with your reasoning and would have also thought that it would not matter whether the money was moved around, so long as none was added and no more or less was distributed but the IRS has been somewhat picky about partial account transfers. As long as a solid paper trail exists for the movements, I am not sure why they are doing this. Perhaps Alan or Dlz could comment on their reasoning for this?
2011-03-20 18:34, By: Ed_B, IP: [188.8.131.52]
L5: Setting up a 72t planThere was a previous discussion and a lot depends on how the IRS views a SEPP once it is established – they may be viewing as a separate plan, only the IRS know for sure. Previous Discussion… http://72t.net/Forum/ForumViewDetails.aspx?R=e84ece6c-b6d8-4b79-9d39-ff1a617f31cf 2011-03-20 18:55, By: Gfw, IP: [184.108.40.206]
L5: Setting up a 72t planBECAUSE THE IRS IS STUPID, ARROGANT, AND IMPOSSIBLE TO DEAL WITH. THEY REFUSE TO CLARIFY OR ISSUE UNDERSTANDABLE REGULATIONS IN THE AREAS THAT GFW AND OTHERS HAVE NROGHT TO THEIR ATTENTION.
THEY DO NOT UNDERSTAND SEPP 72-T, NOR ITS NUANCES.
IF THEY DID, THEY WOULD MARK TAXPAYER ACCOUNTS TO IDENTIFY THOSE WITH SEPP 72-T, AND WOULD HAVE UNIQUE 1099 REPORTING, RATHER THAN TRYING TO PIGEONHOLE IT INTO THE REGULAR SYSTEM.
THE IRS HAS NO WAY TO DETERMINE IF A SEPP 72-T PLAN HAS BEEN BUSTED, UNLESS THEY HAPPEN TO BE AUDITING A TAXPAYER. BUT, YOU SHOULD NOT COUNT ON THIS AS A REASON NOT TO FOLLOW THE RUKES, OR TO SELF-REPORT IF YOU BUST A PLAN.
Now, if you want to know how I really feel, it’s not postable !!!2011-03-20 20:17, By: dlzallestaxes, IP: [220.127.116.11]
L6: Setting up a 72t planEd posted this and it bounced…
Peace, my friend. It’s Sunday and far too nice a day to have your blood pressure spike off the charts.
I have only had direct contact with the IRS a few times. Each time I did, they were helpful and courteous. I made it very clear from the onset of each episode that I needed their help to get things straightened out and was courteous to them. Don’t know if I got with just the right people or they were having a good day but I found them quite easy to work with and things were resolved in my favor each time. This is not to say that people don’t often have trouble with them because they do. Still, like most organizations, they have people who are quite good and some who aren’t.
I do agree that the IRS, in general, has a tendency to not issue rules that are clear. 1099 coding is a perfect example. The IRS describes this one way and most custodians define it a different way. Also agree that specific 72t distribution codings on the 1099s would be good and would be very simple to implement.
A lot could be done in the area of streamlining and simplifying the regs. It is likely that Congress would have to act to provide the impetus for it, though. A very simple flat rate tax with one standard deduction would be a great place to start, IMHO.
Ed2011-03-20 22:22, By: Ed, IP: [18.104.22.168]
L7: Setting up a 72t planMy point was, taxpayers and practitioners should not have most of the issues discussed on this website re IRS, if they would just get their own act together.P.S. There are no “days off” during Tax Season for practitioners, especially this year..2011-03-21 05:11, By: dlzallestaxes, IP: [22.214.171.124]