Transfer of existing sepp acount to another custodian

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L1: Transfer of existing sepp acount to another custodian
I set up a sepp account at a major investment firm 4 years ago. The money is in various mutual funds and I make 4 equal withdrawals each year. I just contacted Vanguard about transferring my account to them. I received an email warning me that I should check
with “a qualified tax advisor to see if a transfer is considered a modification”.
I do my own taxes so I don’t have a tax advisor. I think Vanguard should know if it is legal or not but does anyone know if there is anyway this transfer could break my sepp?
I am 60 and the money is in a rollover IRA.
Regards,
Joe
2011-12-30 15:31, By: Joe, IP: [68.163.21.83]

L2: Transfer of existing sepp acount to another custodian
Brokers, mutual funds, etc. are reluctant to give “legal or tax advice” because of professional licensure restrictions.
We do not have that restriction here because we are giving opinions or experiences, even though some of us are tax or financial practitioners.
I believe that transferring ALL of a SEPP 72-T investments from one custodian to another will not be a “modification”. The IRS has a stupid interpretation/ruling that moving part of a plan is a modification, which is why we warn people on this site about
that potential problem for “partial transfers”.
That being said, what was the date of the first distribution ? If you wait until 1 month after 60 months in the plan ( since you are already 59 1/2), then there would not be any possible problem.
2011-12-30 20:31, By: dlzallestaxes, IP: [96.227.217.194]

L3: Transfer of existing sepp acount to another custodian
I agree with dlz. If you are within a year of the end of your SEPP plan, I would just wait until it ends before doing the transfer.
But if you want to proceed anyway, just be sure to transfer the entire account to Vanguard to avoid the partial transfer risk. And do the transfer by direct trustee transfer, not by indirect rollover.
If you have been getting the exception code 2 on your 1099R in the past, you will not get the exception code from Vanguard and will need to file Form 5329 to claim the exception on your tax return. (Exception code “02”)
2011-12-30 22:34, By: Alan S., IP: [24.116.66.40]

L4: Transfer of existing sepp acount to another custodian
Filing form 5329 is no big deal. All “people” tax software, and professional tax software do it easily. Nothing to be concerned about, and definitely won’t cause an IRS audit.
2011-12-30 22:42, By: dlzallestaxes, IP: [96.227.217.194]

L3: Transfer of existing sepp acount to another custodian
Thankyou for taking time to reply to my question.
The first distribution was 1/24/2008. So I have to wait for another year to be 100% sure that there won’t be any problems.
I searched the internet and have found a few horror stories where sepps were busted due to misunderstandings. E.G. one person transferred part of an IRA that was taking sepp withdrawals, also where someone transfered 2 accounts where one was a sepp and one
was not and the new custodian combined them into one account.
There are also examples where someone transferred a sepp ira and the new custodian deducted the 10% penalty when withdrawals were made.
I want to go with Vanguard because of their low cost fee structure but they are not giving me warm fuzzy feelings concerning sepp 72(T) accounts.
Joe
2011-12-31 02:49, By: Joe, IP: [68.163.21.83]

L4: Transfer of existing sepp acount to another custodian
If you search this website you will find almost universal high marks for Vanguard, and its knowledge and handling of SEPP 72-T accounts.
( Full disclosure — My daughter has been with Vanguard for 20 years, and is incharge of the training for the new cost basis reporting IRS fiasco that starts next week. If you are a “Bogelhead”, look at today’s looooong discussion of that area among various
investors, and Rebecca Katz of Vanguard, who is extremely knowledgeable. Better yet, wait until tomorrow, or you won’t get much sleep.)
2011-12-31 02:56, By: dlzallestaxes, IP: [96.227.217.194]

L5: Transfer of existing sepp acount to another custodian
dlzallestaxes,
Thankyou for offering your opinion of Vanguard. I know they are a good company and I value your opinion. I just want to be very careful because I could end up owing the IRS tens of thousands of dollars and I feel like the Vanguard rep is giving me a warning
but not explaining what the dangers are.
I checked Fidelity’s web site and if I understand it properly they don’t even accept accounts where are 72(T) sepp account has been started.
Joe
2011-12-31 03:09, By: Joe, IP: [68.163.21.83]

L6: Transfer of existing sepp acount to another custodian
Joe,
I have had one of my SEPP plans at Vanguard (using an existing IRA with them) since May 2007, and other than getting a code “1” on 1099-R that requires me to file 5329 with my taxes each year, there have been no problems with them doing what I requested.
In my first year, I asked for the May ’07 payment to be 5 months worth, (I gave them the gross monthly figure and the tax %’s for Fed and State w/h on my SEPP) and I told themto start doing monthly payments in June ’07, and it went without a hitch. KEN
2011-12-31 05:12, By: Ken, IP: [24.63.124.114]

L7: Transfer of existing sepp acount to another custodian
Ken,
Thanks for the info on Vanguard. Do they have some way to know that you are taking a sepp?
The reason I ask is I was wondering if they are required to take out the 10% penalty for withdrawals on non-sepp accounts for those under 59 1/2 or is that the responsibility of the taxpayer.
Joe
2011-12-31 15:22, By: Joe, IP: [68.163.21.83]

L8: Transfer of existing sepp acount to another custodian
Joe,
I recall filling out a withdrawal form where I specified that I was taking them under a SEPP plan. It was a form fromtheir website, and may have been specifically for SEPP withdrawals, or it may have just had a check box for that, but they know I am doing
a SEPP, and their policy is to use code 1 because they did not compute (or guarantee) the withdrawals as being correct for a SEPP, (like most custodians). I just tried to locate the form on their web site and had no luck.
I found my saved PDF of the 6 page form RRDF that I filled out for them in April 2007 (their form) for “IRA withdrawals”, and a separate VANGUARD page that is titled “FIXED AMORTIZATION WORKSHEET” (but has no form#). That last form is where the SEPP details
are listed. I am sure a rep at Vanguard can give you the link to find these, and failing that,DLZ may be able to tell you where to find it on their website after checking with his daughter. KEN
2011-12-31 16:37, By: Ken, IP: [24.63.124.114]

L9: Transfer of existing sepp acount to another custodian
The 10% that was withheld was not withheld as a penalty, but rather 10% is the default withholding % for IRA distributions when you do not specify that you are declining withholding. As far as the IRS is concerned the money goes
into the same pot. While you can use withholding in a SEPP plan at the % you want, many people choose to eliminate that element and to pay their taxes using quarterly estimates, as that eliminates one more thing with the IRA custodian that can get messed up
due to misunderstanding, and once the money goes to the IRS, it remains there until you file your return.
While it is preferable that the IRA custodian understands the basics of a SEPP plan even if they do not offer the 1099R coding, it is also possible to undertake a SEPP with a custodian that knows nothing about the plans and does
not even know you are executing a SEPP plan. The plan is basically between you and the IRS and the custodian should not be automatically doing anything that would bust your plan.

2011-12-31 19:53, By: Alan S., IP: [24.116.66.40]

L2: Transfer of existing sepp acount to another custodian
“I want to go with Vanguard because of their low cost fee structure but they
are not giving me warm fuzzy feelings concerning sepp 72(T) accounts”.
Vanguard does not acknowledge that their clients even have a SEPP account, so there will be no hand-holding from them on that count. When I started a SEPP in March 2005 on my Vanguard IRA, they had a specific SEPP form that had to be filled out. A year
or so later, they changed their policy such that there was no longer a specific SEPP form or any acknowledgement of a SEPP running on a clients’ IRA. What they did instead was to offer a different form for periodic withdrawals. This is more generic but accomplishes
the same thing. By completing this form, Vanguard will send you checks or electronic bank account deposits in the amount and at the frequency that you specify. If you have a SEPP, you will have to file a form 5329 to claim the exception to the 10% early
withdrawal penalth tax when you submit your completed annual tax forms.
All that said, I have found Vanguard to be a very good custodian for my money and I have had minimal problems with them. There have been a couple of errors made but these were quickly and easily rectified with zero impact upon my SEPP. Because of this,
all SEPP owners are strongly advised to watch their distributions very carefully and to correct any deviations from their calculated withdrawal amounts ASAP. Errors of this type often can be corrected if the error is discovered and acted upon right away.
Never assume that any custodian is paying close attention to this, as errors do come along now and then and the custodian is unlikely to detect them without our assistance.
If you want to invest in Vanguard mutual funds, this is an excellent way to do it. If you want to invest in individual securities or mutual funds other than Vanguard funds, you can still do that, although their fee structure may not be as low as you might
like. In that case, either Scottrade or TD Ameritrade might be viable alternatives. My wife and I have accounts with all three of these companies and have been satisfied with their offerings and performance over the years.

2012-01-03 21:58, By: Ed_B, IP: [71.236.204.181]

L3: Transfer of existing sepp acount to another custodian
Vanguard does have a Brokerage Division if you want to invest in specific securities, rather than mutual funds.
From my perspective, SEPP 72-T and other retirement accounts, should be invested in fixed interest securities, and buy and hold investments for dividend income and growth should be in equities, from a tax aspect. Otherwise, you will be paying higher taxes
on your dividend income and long-term capital gains in your SEPP 72-T or other retirement accounts when withdrawn, as part of your current income. And you cannot deduct losses in your SEPP or other retirement accounts.
Of course, if you do not have investments outside of your SEPP or other retirement accounts, then your diversification/balancing will have to be within the SEPP or other retirement accounts.
2012-01-03 23:04, By: dlzallestaxes, IP: [96.227.217.194]

L4: Transfer of existing sepp acount to another custodian
Yes, I know that Vanguard has a brokerage system that allows clients to buy and sell various securities. When I checked into this in 2005, they were charging $33 to buy or sell a non-Vangard security. I could do the same at TD Ameritrade for $10 or $7
at Scottrade, so elected not to invest any of my IRA money via Vanguard’s brokerage system. I have not looked into this in some time so do not know what their brokerage prices look like now. I will check that out again and see if they have become more competitive.
My wife and I do have the bulk of our assets in various retirement accounts, so reducing our tax liability via your suggestions probably won’t work as well for us as it would for others who have significant taxable account assets. We do have some, though,
so probably should consider some additional tax planning options.
2012-01-03 23:45, By: Ed_B, IP: [71.236.204.181]

L5: Transfer of existing sepp acount to another custodian
WOW! I just checked the Vanguard web site and their brokerage prices seem to be MUCH better than they were 5-6 years ago. Voyager Select clients can buy and sell stocks for $2 per trade. This is MUCH better than the $33 they used to charge. I will check
further into this to get all of the details but what I have seen so far looks very encouraging. I am a little surprised thatVanguard did not send this info out via email. Thanks, Dlz, for stirring my interest in checking this out. 🙂

2012-01-03 23:54, By: Ed_B, IP: [71.236.204.181]

L6: Transfer of existing sepp acount to another custodian
I understand that investors look to save commissions/fees on purchases and sales of stocks, or mutual funds. But if the expectation is a limited number of transactions, especially with a buy and hold approach, I believe it should not be the tail wagging
the dog.
In the SEPP 72-T arena, I believe that working with a knowledgeable advisor or person should be considered in conjunction with the fee costs. A processing error, or an IRS audit, or 10% penalty, will be many times more expensive than the fees.
2012-01-04 01:22, By: dlzallestaxes, IP: [96.227.217.194]

L7: Transfer of existing sepp acount to another custodian
I agree. People often make investing decisions that save them a little tax money, for example, only to lose much more than that via their decision. A classic case was the people who bought Sun Microsystems at $5 a share and then held it while it went to
over $100 a share and back to $5. Yes, holding those shares for a year allowed them to be taxed at the cap gains rate instead of the income rate but all the money that was made on those shares was made by people who bought and then sold 4-6 months later.
Fortunately for me, my SEPP ended in March of 2010, so its rules and restrictions are no longer of any concern.
2012-01-04 06:09, By: Ed_B, IP: [71.236.204.181]