Transfering my 72t IRA to another IRA
L1: Transfering my 72t IRA to another IRA
Hello again. I have a question I was hoping you can help with. I’m 53 and have a 72t plan with my IRA at Schwab. I’m in my second year of the plan. I’m interested in a new product service at Schwab that involves an algorithm-managed ETF portfolio. Upon inquiry, Schwab advises that I would need to open a new IRA account to use the service since the algorithm account is linked to their algorithm server. So my question is this. Is there any issues with me doing a complete IRA transfer from my existing 72t IRA at Schwab to the new IRA at Schwab? As I look at the 1099R I received from Schwab this year, I do note the account number on the 1099R. If I roll the money to a new IRA, then of course subsequent year 1099-Rs will show a different account number. Nothing else would change however in terms of distribution amount. I’m wondering if the IRS would view the changed account number as different IRA and hence an abandonment of my IRA plan. Does this concern have merit or are there issues I need to be aware of before following through with the account change? Thank you so much. Mike C in Ohio
2018-01-27 01:39, By: copleyma, IP: [22.214.171.124]
L2: Transfering my 72t IRA to another IRA
A complete transfer to a no balance IRA account is not a problem, but there have been a couple cases of a partial transfer leading to a plan failure. In fact, if a plan is started using two accounts in the first place, the 72t distribution can be taken from any combination of those accounts and the account number on the 1099R could change from year to year.
It sounds like you are placing your entire IRA balance in the new program, otherwise Schwab would have suggested a transfer of only the amount you wanted in the new program. Since that would have entailed a partial transfer, it would have created a slightly higher risk to your plan. The transfer itself will be a non reportable same trustee transfer and will not generate a 1099R, so you will not need to report a rollover on your tax return. If this transfer is done before you take a distribution this year, you will only get one 1099R for 2018 showing the new account number.
2018-01-27 16:31, By: Alan S, IP: [126.96.36.199]
L3: Transfering my 72t IRA to another IRA
Thank you Alan. Yes, you are correct in that I’m transferring the entire existing account to a new zero balance account with the same custodian. Appreciate the sanity check before I take steps to execute my planned change.
2018-01-27 18:19, By: copleyma, IP: [188.8.131.52]
L3: Transfering my 72t IRA to another IRA
What if the full transfer is a trustee to trustee transfer (all other things the same, i.e. zero balance) but it’s two different companies? For example, let’s say Prudential has the existing 72(t) which is in year two of payout and the account gets fully transferred to T Rowe Price. The payments continue exactly as they should. Would this be considered a modification?
Further, when I ask Prudential, they say they are going to code the transfer with a 1 on the 1099R which will require a Form 5329 to be filed with the tax return to “recharacterize” that to a “2”.
How will the IRS view this?
2018-02-01 18:48, By: Tim, IP: [184.108.40.206]
L4: Transfering my 72t IRA to another IRA
As long as it is a full transfer, it is not a modification. The first custodian will probably code past payments with code 1 even without the transfer, but a trustee to trustee transfer is not reported at all on a 1099R. The new custodian will likely also use Code 1 for subsequent distributions, and any such code 1 just requires a 5329 to be filed to claim the exception. A direct transfer also saves the one permitted indirect rollover for emergencies such as returning any amount that should not have been distributed within 60 days of that distribution.
Even when a transaction such as a full transfer is valid, it is best to do it in a way that does not attract IRS attention to the plan if possible.
2018-02-01 23:13, By: Alan S, IP: [220.127.116.11]
L5: Transfering my 72t IRA to another IRA
Everyone should stop being concerned if 1099-R distributions are coded as a 1 or a 2. Almost all companies are coding them as a “1”, and no one should select the fiduciary based upon how it codes the distributions.
Anyone doing a transfer to another fiduciary (i.e. broker or mutual fund) should ALWAYS do them as electronic trustee-to-trustee transfers, and should never have the checks issued to themselves, because then these are called “rollovers”, and are limited to once within 365 days.
2018-02-02 20:18, By: dlzallestaxes, IP: [18.104.22.168]