splitting SEP after starting a 72(t)
L1: splitting SEP after starting a 72(t)
I’m in year three of a 72(t), about two years to go. Required distribution is approx 40K per year. Account balance approx 1.5 million. Question: can I take the existing SEP IRA balance of 1.5 million and divide it into two separate accounts at my brokerage, with separate account numbers. For example, .5 million remains in the existing account thereby assuring sufficient liquidity for the next few years, and 1 million transferred/journaled into a second account at the same brokerge/trustee (Schwab).
I would not make any withdrawals, or or make any additions. I would not disrupt the payments as they are occurring at present, and I would allow the 72(t) plan to run its course and terminate it at the permitted time in a few years.
I would not be changing the balance held by trustee, but rather, partitioning it.
2019-04-10 00:07, By: m191, IP: [2601:647:4d04:56c0:225:ff:fe4c:4d9d]
L2: splitting SEP after starting a 72(t)
There is no way to say for sure that these partial transfers will not bust the SEPP. While the odds are very much in your favor, the IRS has busted plans at least twice (PLRs 2007 20023, PLR2009 25044) for partial transfers. Oddly enough, a full transfer of an IRA to another IRA has not been an issue.
Now 2 out of several thousand plans amounts to very good odds in your favor, and the IRS never rationally explained their reasoning for the two busted plans. If you want to proceed, it would be safer to move the funds by non reportable transfer (no 1099R), then continue to take your SEPP distributions from the same IRA account as before. The only 1099R you should receive then is for the same account as always. This makes it less likely that the IRS will even notice that you made the transfers even though there will be Form 5498 reports of year end value for all your IRA accounts.
Of course, the small amount of risk could be fully eliminated if you transferred the entire IRA balance to the new account, which is likely in one of Schwab’s managed account programs. Check if there is any issue with continued SEPP distributions from the new account under Schwab’s terms and conditions.
2019-04-10 00:54, By: Alan S., IP: [184.108.40.206]
L3: splitting SEP after starting a 72(t)
Thank you. If I simply open a new SEP at my existing brokerage and fund it via a journaling of shares from the longstanding account to the newly created account, would this be a non reportable transfer?
None of the assets in my SEP would ever leave the brokerage, no disruption to the monthly withdrawal per the existing schedule, I have more than enough liquidity to ensure uninterrupted withdrawals per my elected schedule.
My brokerage is telling me that if I open a new SEP – at the existing brokerage – and fund it with proceeds from the existing SEP, it is a “modification” to the old SEP.
I asked if they would elevate this and/or check with legal, and they flat out declined. I asked the rep if he was certain or if he was flying by the seat of his pants, and he was clearly offended by my question.
If my broker’s reporting responsibility is to produce a 1099(R) reporting my scheduled withdrawals, and if there is zero disruption to my scheduled withdrawals, is the broker going to set off any alarms. I can’t imagine they’d file a separate or amended 1099 if no additional funds left their building. Is the broker under some type of reporting obligation to scream “modification”?
My account balance at the end of this year, in the aggregate, would be identical to what it would have been had I not carved off a chunk and put it into a sister account, and certainly the annual summary of payments to me would be identical to the last few years.
I am not opposed to taking the entire account and transferring it to a new brokerage. Let’s say the new brokerage is Robinhood, or TD America, or whomever. I’d ask that they break the account into two pieces, but not sell anything, not send me any proceeds. I’d ask that they stick to the 72(t) schedule I’m on, and continue sending me the withdrawals as I have them set for at present.
2019-04-11 15:14, By: m191, IP: [2601:647:4d04:56c0:225:ff:fe4c:4d9d]
L4: splitting SEP after starting a 72(t)
Short answer… your brokerage is 100% right. You can
NOT transfer the assets of one SEPP to fund a new SEPP. You would merely break the original SEPP.
2019-04-11 15:38, By: Gfw, IP: [220.127.116.11]
L5: splitting SEP after starting a 72(t)
m191, your use of terms is causing some confusion. First of all, refer to your PLAN as either a SEPP or a 72t plan. A SEP (one P) is an IRA (Simplified Employer Pension), so reading your last post it sounds like you wanted to fund a simplified employer pension (SEP IRA), and that would bust your SEPP plan because it would be receiving new contributions. Also, any new SEPP using the same funds would bust the old one.
Instead, you want to partition your existing IRA account subject to a 72t plan and do a non reportable partial transfer to a new IRA account with Schwab. This would not generate a 1099R or change your existing plan, but as I explained earlier it is possible that the IRS could bust the plan as a PARTIAL transfer. The fact that there will not be a 1099R issued for this transfer and you are not taking distributions from the new account does not change the fact that a partial transfer was done. No 1099R just means that it is not brought to the IRS’ attention as a distribution/rollover. In fact, we get several questions every year about partitioning an IRA under a 72t plan to an IRA annuity with an insurance company, and this is basically the same thing. Whether you do the partial transfer to a new account at Schwab or to a new IRA custodian other than Schwab is not material. As for 1099R coding, Schwab used to code your 1099R with code 2, but I think that they are now using code 1 like most everyone, forcing you to file Form 5329 to claim the 72t exception.
I think there is a good chance the Schwab (or other firm) rep misunderstood the entire situation. If you do this, we only know that the IRS has busted a couple plans but there could be more we haven’t heard of, but in the vast majority of partial transfers the IRS has done nothing. No one can say for sure whether the IRS will bust your plan, and the odds are in your favor, but you are still rolling the dice.
2019-04-11 16:37, By: Alan S, IP: [18.104.22.168]
L6: splitting SEP after starting a 72(t)
You are correct, I apologize for the confusion. It’s an unfortunate coincidence that SEP and SEPP are so similar.
I have a longstanding SEP-IRA as I have been a sole proprietor for the past 30 years. I went on a 72(t) because I was in my mid 50’s, wrapped up my sole proprietorship, did not want to enter the new world of commutes, salaries and meetings, and I have no idea how long God has decided to allow me to remain on earth.
What I was hoping to do is take my SEP-IRA, and carve it into two pieces. Doing so would allow me to qualify for a certain mortgage transaction which allows SEP-IRAs or any IRA/401K to be viewed as “income”, as long as *no distribution is taking place*.
Thus I was hoping to be able to show a SEP-IRA account, the one I newly created, with a large chunk of assets, and no withdrawals appearing on the monthly statement. My “old/existing” SEP-IRA account statements of course would show the robotic withdrawal, and which of course implies that there is indeed an ongoing distribution. None of what I was considering would be fraudulent, as I would be complying with the letter of the mortgage requirement that I show an IRA, in my case a SEP-IRA, without an ongoing distribution. I am under no obligation to provide evidence of all of my accounts.
However, as I have understood from the kind folks who replied, I’d be busting the existing plan. The bust would be in the fact that I altered the original SEP-IRA account in a way that was not due to market fluctuations, income generated, or the buying or selling of securities.
2019-04-11 17:13, By: m191, IP: [2601:647:4d04:56c0:225:ff:fe4c:4d9d]
L7: splitting SEP after starting a 72(t)
Let me try to see if you can understand me, since you apparently did not understand Alan’s excellent and professional explanation.
1. You have a SEP-IRA. You can have multiple different SEP-IRA accounts, one might be a “managed account with monthly/quarterly FEES”, and another might be a traditional account with commissions.
2. Do not use the term “SEPP” in discussing a 72-T plan with your brokers because they will probably be confused that you are talking about a SEP-IRA when in fact you are talking about a SEPP (2 “P”‘s).
3. I think that what you want to do is to split your present $ 1.5 million SEP-IRA into two ACCOUNTS, one for $ 1 million, and another for $500,000 and you want to designate one of these accounts as being the “universe” for your SEPP plan with ANNUAL distributions (with any frequency) of $ 40,000, and the other account being maintained without any distributions, and re-investing any income (Interest, Dividends, Capital Gains on Sales, etc.).
4. You have to use the “reverse calculator” on this website (before 4/30) to determine how much you have to put of your SEP-IRA into a separate account (either managed or traditional) that will be the basis for your SEPP 72-T distributions of $ 40,000/year. These distributions from the SEPP 72-T account of your SEP-IRA can be made from INCOME or PRINCIPAL. The IRS or brokerage firm, or you, should not care where the cash comes from.
5. The amount that is not needed for your SEPP 72-T stays in a different SEP-IRA account.
2019-04-11 20:01, By: dlzallestaxes, IP: [22.214.171.124]
L8: splitting SEP after starting a 72(t)
Let me take another crack at this. I will use your enumerated points.
1.) “You have a SEP-IRA”. Yes, I do. I have had one, and only one, for about 30 years. I’m 58 in a couple months.
2.)”Do not use the term “SEPP” in discussing a 72(t) with plan with your broker”. I don’t use that term, I simply call it my retirement account with approx 1.4 million, and which is currently enrolled in a 72(t) plan. They say “yes, we can see it on the screen”.
3.) “I think that what you want to do is…” Yes, correct. I wish to open a brand new retirement account, and populate it with shares which already exist in the retirement account I have at present. Doing so would create an entirely new/fresh account, and new/fresh account number. My old/existing retirement account would see an outflow of funds, let’s say $400,000 worth, but it could be much more if I chose. When all is said and done, I end up with my “old” retirement account with a market balance of $1 million, and a “new” retirement account with a market balance of 400K. Or any other way of slicing a pie into two pieces.
At this stage, I feel very confident my “old” retirement account, the one that according to above scenario and has only $1 million, can throw off $40,000 in annual distributions. If I wanted to be extra prudent, I could liquidate some securities and keep $80,000 in cash. This gives me two years of guaranteed liquidity. By the way, in two more years, I’m out of the program altogether, I will have met the 5 year rule, or 59.5 age rule, whichever is longer.
4.) “You have to use the “reverse calculator” on this website (before 4/30) to determine how much you have to put of your SEP-IRA into a separate account (either managed or traditional) that will be the basis for your SEPP 72-T distributions of $ 40,000/year.”
This is where you lose me. Why do I need to do this calc? My old/existing retirement account is more than capable to churning out what it has always churned out.
Now I will go off script.
I have two years remaining on my 72(t). I know my end date and the rules for an end date. From today, until my end date, the IRS is expecting I withdraw my typical monthly withdrawal and they will be wanting a 1099 as evidence of my compliance. My broker will report my activity.
From now until my end date, the IRS is expecting me to withdraw $3,333 per month ($40,000 per year equals $3,333 per month). My obligation to the IRS is I do this withdrawal, and I never waiver from the plan, and it is evidenced or reported to them on a 1099.
If my financial needs are to satisfy the IRS in the amount of $80,000 over the next two years, I could in theory drain (not drain to my checking account!) my existing retirement account of everything, but leave $80,000 sitting there in zero interest cash. There would always be sufficient liquidity. I would not run dry. I’d take my monthly distribution, the broker reports my activity year end.
When all is said and done, at the termination of my 72(t), that retirement account is more or less zero. Maybe a few dollars left due to whatever tiny interest in may have earned.
So … this “draining” of the retirement account. How did I drain it? It didn’t go to me as income. I opened a brand new retirement account, and I filled it with what was drained from the existing retirement account. Nothing ever came to me, I cashed no checks, I received nothing. I simply partitioned an existing retirement account. I did a partial transfer within the walls of the brokerage.
I now have this brand new retirement account. I don’t want anything from it. I don’t need anyone to help me invest it. I want to do what I’ve done forever, which is to say buy/sell and reinvest. And of course, my main priority, I want that monthly statement that shows I have an IRA, and there’s nothing coming in and nothing going out. The balance may be expanding or contracting based on the market and/or returns, but no 1099 income is being generated. And to be frank, I might even re-join the two retirements accounts again, in a few months time. A partial transfer back to the original account.
Based on all of the above, my brokerage has said: do not touch your retirement account. Don’t do any transfers out, even if a transfer out is to my own new IRA. However, if I want to take the entire balance and move it to another broker, I am free to do so,
My brokerage has said: don’t do anything in terms of opening and funding a new retirement account. My question to them is: Why? Are you going to report my inter-office activities? I was under the impression all you do is file a 1099 and prove I took my prescribed disty. How is anyone going to know what I have done?
One way to tell, of course, would be to look at the year-end retirement account balances. Where there used to be just one account number, now there are two account numbers.
Would someone with a sharp eye notice this and claim I fractured my sacred retirement account? Maybe. I believe one of the replies said statistically I am flying under the radar, but yes the risk is there and a small fish such as myself wouldn’t have much chance at arguing my theory with the IRS. And what is I did an transfer to a new retirement account, paused for four months, and then transferred it all back? At the end of the year, only one account number, only one retirement account.
2019-04-11 20:57, By: m191, IP: [2601:647:4d04:56c0:225:ff:fe4c:4d9d]
L9: splitting SEP after starting a 72(t)
I am sure that Alan will respond as well.
You stated in your initial posting that you have a “SEP-IRA” (one “P”). It is possible that your SEP-IRA is the account that is the basis for your SEPP 72-T, but I did not understand anywhere in your postings that this is what you meant.
Now you tell us that you are 58+. I know that I would not touch your present idea, and I would recommend that you ride out the next 1 1/2 years to age 59 1/2, when your SEPP 72-T PLAN will be over. Your comments about splitting the present SEP IRA into 2 accounts, and then re-consolidating in a month or two, or later, but before you are 59 1/2 makes no sense to me. You haven’t given us the reason that you want to proceed with your approach.
Your broker is giving your excellent advice, and a professional WARNING. You apparently did not understand Alan’s comments — YOU CANNOT MOVE ASSETS INTO OR OUT OF ANY OF YOUR IRA ACCOUNTS MORE THAN ONCE WITHIN 365 DAYS. IF YOU DO MOVE SOME, MOST, OR ALL, FROM ONE IRA ACCOUNT TO ANOTHER IN MORE THAN 1 TRANSACTION, THE IRS, AND THE COURT SURPRISINGLY, CALL THIS A “PARTIAL TRANSFER”, AND IS LIMITED TO A SINGLE TRANSACTION. IF YOU DO MORE THAN ONE, YOU WILL BUST YOUR PLAN, AND BE SUBJECT TO A 10% PENALTY RETROACTIVELY ON ALL DISTRIBUTIONS YOU HAVE TAKEN SINCE YOU STARTED THE SEPP 72-T, whenever that was.
You asked for our advice and comments, and you are free to disregard it and take your chances, but that could be a very expensive decision.
2019-04-12 01:52, By: dlzallestaxes, IP: [126.96.36.199]
L10: splitting SEP after starting a 72(t)
Thank you. I don’t need all caps to understand the words you write. You spoke very precisely, so let me correct you, very precisely.
“It is possible that your SEP-IRA is the account that is the basis for your SEPP 72-T”. Yes, it is possible and not at all uncommon. It’s exactly what I have got, and what I have called it since my mid 20’s. People who are self employed routinely call their retirement account a “SEP-IRA”. People who have never been self employed get confused by this term. SEP-IRAs are their own breed, they do not have the funding limitations, for example, as a regular IRA.
“Now you tell us that you are 58+”. One, you are mistaken. Two, do you speak for everyone by using the pronoun “us”? I wrote that I am 58 “in a couple months”. Future tense. I’m 57. If you’re going to jump on someone by starting a sentence with “now you tell us…”, which is a tactic used to discredit someone by implying a shifting story, don’t make yourself look foolish by misreading the facts.
“Your comments about splitting the present SEP IRA into 2 accounts, and then re-consolidating in a month or two, or later, but before you are 59 1/2 makes no sense to me.” My reasoning was that only one account number, and one balance, would show up on a year-end statement, i.e. 12/31/2019
“You apparently did not understand Alan’s comments”. Actually, I did. And I think he also suggested it was relatively low risk, but the risk remans nonetheless and the Private Letter Rulings don’t exactly bolster my argument. I read those PLR’s.
“You asked for our advice and comments, and you are free to disregard it and take your chances”.
And I am appreciative.
I have a degree in accounting, and have studied tax law for years, as a hobby. Several years ago I challenged my broker as to why they were not filing the taxes due related to Unrelated Business Tax Income (UBTI) being generated by a MLP in my SEP-IRA. We had a very heated discussion as I told them they were not in compliance with Federal tax law, and that I did not want to file the form myself and remit the tax because it might look as if I had made an early withdrawal. In the end, the gave me $3,500 as a “retention gift” to smooth my feathers. Yes, they gave me a cash into my regular account, and they 1099’d me. They were concerned I was going to move my account out of frustration. They used to routinely offer me sports tickets, and concert tickets. I declined all of them. I’m not really into ice hockey, or Paul McCartney.
A couple of years ago my broker began properly withdrawing the tax and filing the form if there is any UBTI in a retirement account. My only crime was I was at least five years ahead of the curve in schooling them on tax law and what they should be doing as a custodian.
To clarify some obvious questions: why on earth did I hold a MLP in an IRA? Because it was outperforming mostly everything out there, this was before the term fracking was a household name, and the tax on the UBTI was worth it.
The broker who didn’t know what to do with UBTI but sensed they were about to lose a significant account and therefore paid me to stay with them as a custodian? Fidelity. The broker who offered me sports tickets and concert tickets? Fidelity. Fidelity was great on wining and dining and rear-end kissing, but they were clearly out of their league on a particular tax issue.
Some will think why did Fidelity bother with me. I’m pestering them with tax questions, and my account really isn’t that large. It was. My trading volume in my non retirement account in 2007, for example, was 32 million.
I came to the board seeking a second opinion because I know, from experience, trustees/brokers don’t always know what they are doing. I was hoping to get some friendly opinions.
2019-04-12 16:49, By: m191, IP: [2601:647:4d04:56c0:225:ff:fe4c:4d9d]
L11: splitting SEP after starting a 72(t)
Apology for caps. But, the court decision was very clear about 1 transfer transaction per 365 days into or out of all IRA accounts. (I just saw a comment on Slott IRA that this surprisingly includes ROTH IRAs as well as Traditional, SEP-IRA, and SIMPLE IRAs. I interpret that to cause an issue if someone wants to move an IRA and a ROTH IRA from one broker to another. I don’t think that was the intent of the ruling.)
I agree that there will be only the same account number with a balance at the beginning and end of the year if you do your transfers within the same calendar year. HOWEVER, there is a form 5498 that all financial institutions are required to file by 5/31 after each year FOR EACH ACCOUNT # (in upper right corner of the form) to reflect “Contributions” (Line 1) and “Rollover Contributions” (Line 2), “Repayments” (Line 14a), and the latest 12/31 balance (Line 5), of each account. This is how the IRS will be able to determine that there was more than one transfer within the same calendar year.
I understand that you are a sophisticated investor, and very knowledgeable. (By the way, because the website only lists the latest response, it is time consuming to back track to the initial posting, and subsequent responses, so I apologize for my lack of complete accuracy.) But, you did not indicate your reason for your planned approach, especially within 2 years of the end of the plan. I guess sometimes people with a lot of money always want more, regardless of the risks.
By the way, UBTI is a major issue for brokers, who should be filing the 990-T, and tax practitioners who do not understand that it is required if UBTI exceeds $ 1,000 across all IRA accounts, and not just per account.
2019-04-12 17:27, By: dlzallestaxes, IP: [188.8.131.52]
L12: splitting SEP after starting a 72(t)
Thanks for the info.
Regarding reasoning, I have an opportunity to pursue a certain mortgage transaction if I can show an account statement from a retirement account – but with no distributions in progress.
I might be able to accomplish this by asking my broker to suspend the monthly withdrawals and instead do an annual year end withdrawal. This will generate “clean” statements fr a few months.
Regarding some people with a lot of money wanting more regardless of the risks, I’m not quite sure what that means in regards to me.
My wife and I have one car, a mid 2000 Ford truck. We go out to dinner once every three months. I do not subscribe to cable TV, and we re-use paper towels. I wear jeans and a t-shirt every day and I look for bargains at Walmart. We give money to charities.
My neighbors drive Teslas and Ferraris, and drink $100 per bottle wine. That’s not the life I want and thank God, I don’t have that life.
2019-04-12 19:01, By: m191, IP: [2601:647:4d04:56c0:225:ff:fe4c:4d9d]
L13: splitting SEP after starting a 72(t)
I don’t understand how you can have had a SEPP 72-T for the past couple of years, but have no “withdrawals in progress”, unless you mean that you have been taking only annual distributions at the beginning (or end) of each year. I would think that mortgage companies would prefer to see monthly distributions.
Then you said that you ask the broker to “suspend the monthly withdrawals, and change to an annual year-end withdrawal”.
These seem to be inconsistent transactions.
But, I’ve got too many tax returns to complete to continue this discussion.
2019-04-13 00:26, By: dlzallestaxes, IP: [184.108.40.206]
L14: splitting SEP after starting a 72(t)
I do indeed have withdrawals in progress. You lost the point which was made in a previous post. My withdrawals are monthly.
Mortgage companies don’t care how or when. I owned a mortgage company.
In late 2018 some exotic mortgage programs emerged as an answer to Dodd-Frank. As strange as this may sound, some of these programs *do not* want to see any withdrawals from a retirement account if that retirement account is used as the basis for a mortgage qualification. Hence my thought of switching to an annual, and providing three months of mid-year monthly statements.
There’s nothing inconsistent in my statements. Your area of expertise is tax returns, mine is mortgage lending.
2019-04-13 01:49, By: m191, IP: [2601:647:4d04:56c0:225:ff:fe4c:4d9d]
L15: splitting SEP after starting a 72(t)
I don’t recall you planning to do any 60 day rollovers from your IRAs, just non reportable transfers between IRAs. You can do as many of these as you wish, so the one rollover limitation per 12 months would not be an issue.
With respect to the “partial transfer” that can bust a 72t plan in those few cases where the IRS chooses to for unknown reasons, in this context “transfer” means EITHER a non reportable transfer or a 60 day rollover. Therefore, a “transfer” has a different context in 1099R reporting than it does with respect to busting a 72t plan. The IRS is often inconsistent when it comes to verbiage.
If you want to roll the dice and move a portion (not the total balance) to a newly opened IRA, doing it by direct transfer conceals the movement of funds somewhat, and makes it less likely the IRS would notice this since no 1099R is issued and your Form 1040 return looks the same (line 4) than if you had never done this.
The following quote from RR 2002-62 is most likely the key as to why the IRS busted a couple plans in the past:
“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. “
ii – non taxable transfer to another retirement plan was generally construed by the IRS to refer to another “type” of retirement plan. In other words, you could not do the non reportable transfer between an IRA and a 401k or 403b, but you could move funds between IRAs including Roth IRAs since all these plans are IRAs, and not a different type of plan. There is even an IRS Reg explaining conversion to a Roth IRA of a TIRA being used in a 72t plan to reinforce this. Therefore, in those cases where the IRS did bust the plan, some examiner took a different IRA account to mean a portion of the 72t was transferred to “another retirement plan”.
If you are going to do this non reportable transfer, it would be best to have the new IRA account custodian “pull” the funds from the original custodian so there is no doubt it will be a non reportable transfer with no 1099R and no 5498. Brokers almost always get this right, banks and smaller custodians sometimes mess up and issue a 1099R when they shouldn’t and you don’t want that.
Finally, your 72t plan happens to be a SEP IRA, which I assume is not an “on going SEP IRA”, just an old SEP that received employer contributions sometime in the past. If you open a new TIRA account, do not make it a SEP IRA, but I would not attempt to drop the “SEP” from your current account until after the 72t plan has ended.
2019-04-13 04:51, By: Alan S, IP: [220.127.116.11]
L16: splitting SEP after starting a 72(t)
Alan, thank you! You thoroughly understand what I was attempting to convey.
Two small departures. I’d like to do the non reportable transfer with the same custodian if I can, for the simple reason that it’s easier to do. I could instruct them to journal shares from the existing retirement account, which you have correctly identified as an old SEP-IRA that’s been gathering dust, to the brand new IRA. I can instruct the broker to move, for example, 100 shares of Amazon from the old IRA to the new IRA, and I can easily see it after a few days by simply logging into my account. Nothing is “leaving the building”, all I am doing is partitioning a bedroom so to speak.
Here is where I hit a snag. A neophyte “account rep” at my custodian said yes, go for it, no problem. When I asked to speak to a retirement specialist, he in an annoying fashion said “NO”. When I questioned his knowledge on such things and asked for a higher level opinion, he was offended. As is my experience with custodians, I know for a fact they bluff – case in point a complete lack of knowledge on UBTI in an IRA.
So back to my original premise. Let’s say I do the aforementioned “bedroom partition”. I understand your comment about opening a brand new TIRA, and not designating this new account as a “SEP IRA”, do not tag it as a Simplified Employee Pension IRA.
If I open a brand new TIRA and I populate with journaled shares … does the custodian report *anything*? This is my main question and why I came to this forum, and one which got me to thinking. Is the custodian under some obligation to sound an alarm, or is my 1099R essentially a robotic accounting and reporting thing with no humans involved.
I don’t know if the notorious Form 5498 mentioned by another comes into play if I open a brand new TIRA and I populate the account with journaled shares from my old/dusty “SEP IRA” – an account which I have not contributed to for at least ten years, and never will contribute to in my lifetime. Is my custodian under some type of reporting requirement to file a Form 5498 if I go online, at my existing custodian, create a brand new TIRA, and journal shares from the “old SEP-IRA” to the “new TIRA”
My goal is to have a 1099R that is identical to those received for the past couple of years, no changes whatsoever to my Form 1040 Line 4, and two “retirement accounts” at my custodian. I will then choose which of these accounts statements to print, and I will use those account statements for my own private purposes.
I am not withdrawing anything from my old/dusty “SEP IRA” other than my elected 72t distribution. By “withdraw”, I mean “convert into taxable income”. I am simply “moving”, or as you deem “partially transferring”.
I know what I want to do … I’m not sure what my custodian will do. Do they pick up a hotline to the IRS and say “look what this guy just did”, or do they stay out of it.
Am I attempting to fly under radar? Yes.
2019-04-13 17:06, By: m191, IP: [2601:647:4d04:56c0:225:ff:fe4c:4d9d]
L17: splitting SEP after starting a 72(t)
Since Schwab is your current custodian, the chances of a “rogue” 1099R being issued are very slim. You would be doing a “same trustee transfer” and it does not matter which investments or portions of investments you choose to transfer. And since this is a “same trustee transfer” if no 1099R is issued, there won’t be a 5498 either. At the time of the actual transfer, a transaction code is assigned which is later used when Schwab’s tax dept would otherwise issue 1099R forms. Unlike many custodians, Schwab handles this in house, and does not use an outside clearing firm for tax reporting. Once the transfer is completed, you should be able to call Schwab and ask for verification that the transfer was coded as a non reportable transfer, and NOT a rollover.
I guess the neophyte CSR was at Schwab? Normally, their customer service gets high ratings, much better than Vanguard’s. That said, all custodians have issues dealing with 72t plans and there is CSR turnover, but your plan is between you and the IRS. The custodian can only report distributions and code 1099R forms, so you do not even need to ask them about your 72t plan implications of a partial transfer, but you should be able to get assurance that this transaction will be coded as a non reportable transfer. I think the 1099R that you have been getting is coded “1”, is that right? And you have been filing a 5329 to override the “1” early distribution code by showing exception code “02” on line 2?
2019-04-13 17:50, By: Alan S, IP: [18.104.22.168]
L18: splitting SEP after starting a 72(t)
“I think the 1099R that you have been getting is coded “1”, is that right? And you have been filing a 5329 to override the “1” early distribution code by showing exception code “02” on line 2?”
Yes, and yes. Exactly correct.
“I guess the neophyte CSR was at Schwab? “.
Actually, Fidelity. I’m still with them, I’m just lazy. I could easily go to Schwab, they have an office a mile away if I really need a human, and I used to do business there in a regular account.
The Fidelity CSR was absolutely offended I asked him to double check about in-house transfers, he refused to me put in touch with a supervisor, and he refused to pose the question to his legal department. His voice changed, and he went into the fake sugar-sappy mode. A total alphahole. Nine times out of ten Fidelity has pleasant reps, but he was talking down to me.
“Schwab handles this in house, and does not use an outside clearing firm for tax reporting. Once the transfer is completed, you should be able to call Schwab and ask for verification that the transfer was coded as a non reportable transfer, and NOT a rollover.”
Do you know if Fidelity uses an outside clearing firm, or if they do it in house?
2019-04-14 00:53, By: m191, IP: [2601:647:4d04:56c0:225:ff:fe4c:4d9d]
L19: splitting SEP after starting a 72(t)
Fidelity uses National Financial Services, which is wholly owned subsidiary, so effectively an in house service.
2019-04-14 19:10, By: Alan S, IP: [22.214.171.124]