Trustee to trustee transfer of IRA utilizing 72(t)

L1: Trustee to trustee transfer of IRA utilizing 72(t)Client age 57 wants to transfer his IRA in total to a new broker (very unhappy with current one). For illustrative purposes, say there is $600K in current IRA with a $4,500 monthly SEPP, just finishing year one of the SEPP. Client likes the bond portion of his portfolio, about $325K of the $600K, so he wants to liquidate his stock portion and transfer $275K in cash and the $325 bonds in kind. The new broker would like to utilize a managed money platform, but he cannot hold the bonds in such platform. Can 2 new IRA”s be established, one to reinvest the $275K of cash in a managed money platform and one to hold the $325K of bonds in kind in a brokerage investment account, as long as the $4,500 monthly SEPP is continued between the two IRA”s? Or would doing so bust the 72(t) SEPP exception?2007-09-14 11:06, By: Bill, IP: [199.224.103.18]
L2: Trustee to trustee transfer of IRA utilizing 72(t)We would have considered this a sure bet a few months ago, but PLR 2007 20023 has introduced some doubt as to what the IRS is thinking these days. While that PLR ruled a 72t had been busted due to a partial transfer to a new IRA, it is not totally clear that aTOTAL transfer to two such accounts would pass muster either. The IRS has also failed so far to respond to a request to interpret their ruling in any meaningful fashion.
While there is also no evidence of increased IRS inquiry into the thousands of plans that have used transfers in recent years, and that is a positive, I think the only response to your question would be that a 100% positive answer is not possible until a better explanation is forthcoming from the IRS. So while this “should” be OK, there is some element of risk even with total transfers such as this. One solution could be to wait a little longer until the dust settles before doing the transfers.
A factor in making the decision is that he is only in his first year, and even if the IRS rules against him in some later year, there will be no more than 3 or so years at risk prior to age 59.5, so any gamble does not have the downside of someone who started their plan at 50 several years ago.
2007-09-14 19:30, By: Alan S., IP: [24.116.165.60]

L2: Trustee to trustee transfer of IRA utilizing 72(t)Hello Bill:
I keep coming back to the IRS”s reply to my general information letter request in which they said:
“For example, a trustee to trustee transfer of a portion of an IRA from which a series of substantially equal periodic payments has been launched and a subsequent failure to continue to include the account balance of the transferee IRA in the chosen methodology may cause a modification to such series that would result in the imposition of the 10 percent additional tax under Code section 72(t)(1).”
The key language is obviously: “failure to…include the account balance…”
I can ponder & create all kinds of siutuations where a trustee-to-trustee transfer (or rollover for that matter) are unto themselves just fine; e.g. they DO NOT cause a modification pursuant to IRC 72(t)(4); but, then susequent actions by the taxpayer do cause the modifciation; e.g. something as silly as not taking into account the transferee IRA (the new IRA created) in a switch to the RMD method or taking an additional distribtuion from the transferee IRA, etc., etc.
Further, I am now 100% convinced that there is something unknown about PLR 2007-20023 which is unique to that taxpayer”s facts and circumstances resulting in a modification.
In conclusion,in my opinion, astraight transfer of assets as you have described is just fine.
TheBadger
wjstecker@wispertel.net
2007-09-15 07:43, By: TheBadger, IP: [72.42.67.8]