Trustee to Trustee Transfer of Ira
L1: Trustee to Trustee Transfer of IraI will be 59 1/2 next week on April 22. I started taking monthly distributions from my IRA in Jan 2004. So Iam under the 72t rule until this month. The financial institution where I have my IRA moved $100,000 of my IRA back into mutual funds. Instead of doing this as just reinvesting themoneythey moved it into a new account. The date they moved the money was 4/7/09. Since this was done 2 weeks before I am 59 1/2 will this transfer cause my 72t plan to be busted by 2 weeks? I also receive my monthly distributions on the 15th of the month which is after 4/7 also, so my last distribution was received by me after the transfer occurred. I did not know they were going tocreate a new IRA & when I found out I contacted them & they are telling me it is ok because it is occuring in the month that I am 59 1/2, that the transfer being dated 4/7 is ok. Should I be concerned? Are they correct? If not what can I do about it?2009-04-15 21:36, By: Viv, IP: [184.108.40.206]
L2: Trustee to Trustee Transfer of IraThere is no problem with a trustee to trustee transfer of your IRA. This will not even be reported on a 1099R. It would be helpful, however if the new custodian issued you two 1099Rs for 2009, one coded 2 for the April distribution prior to age 59.5, and another coded 7 for any distributions you may take after age 59.5. Otherwise, you will have to claim your exception on a 5329, and perhaps you were also doing that with the former custodian.2009-04-16 02:46, By: Alan S., IP: [220.127.116.11]
L2: Trustee to Trustee Transfer of Ira1. You did not have a “trustee-to-trustee” transfer because it stayed within the same financial institution.
2. Since you are getting your distribution before reaching 59 1/2, this seems to be ok.
3. Since the new IRA account was set up from the transfer of assets from the account under your SEPP 72-T, I would assume that it would be deemed to also be part of the SEPP universe.
4. After you reach 59 1/2 on 4/22, the SEPP 72-T is no longer applicable as you would have satisfied the 5-year/59 1/2 provisions. You could stop future distributions until you are 70 1/2, or can continue distributions as regular distrtibutions, rather than “early distributions”.2009-04-16 04:13, By: dlzallestaxes, IP: [18.104.22.168]
L3: Trustee to Trustee Transfer of IraThank you for the info. I don’t know if the new IRA account is deemed to also be part of the SEPP universe. That is my concern. As far as I know they distributed my final distribution before I am 59 1/2 yesterday from the original IRA and this is after the new IRA account was set up not before. I know that a 5498 form gets sent to the IRS every year for each IRA account. For the last 5 years they have only gotten the one from the original IRA. So if this year they get 5498’s from 2 separate IRA’s will that cause a problem? Also bycreating the new IRA will the 5498 for it show the amount moved in box 1 & then the fair market value in box 5.? If there is an amount in box 1 won’t this cause aproblem?I know after this month I may decide to move some of the money to another institution which will generate 5498’s but I will be out of the SEPP 72-T. So I know that should be ok. I hope I am wording this ok. I appreciate any info you can give. Like I said originally I just don’t want to have something done wrong 2 weeks before the SEPP 72-T ends. Thanks again.2009-04-17 00:38, By: Viv, IP: [22.214.171.124]
L4: Trustee to Trustee Transfer of IraDlz is correct. This was a “same trustee transfer” rather than a trustee to (different) trustee transfer. Either way, as a form of direct transfer, there should be no 1099R or 5498 forms issued to report the movement of funds, ie the issue and receipt of rollover contributions.
There seems to be some question regarding which IRA account distributed the final monthly SEPP distribution, but it does not matter as long as the total distribution issued for 2009 is 4 months (actually 3 months would have been technically better, but the IRS has not been picky in cases like this where you have been taking monthly distributions all along).
There will be a separate 1099R for distributions from each IRA account. This will be simpler if the 4 monthly distributions for 2009 came from the original account only, because you would then have only one 1099R during the term of the SEPP. However, if the last monthly came from the new IRA, you will have two 1099Rs to report and they could be coded differently in Box 7. If the April monthly distribution came from the new account, try to talk the IRA custodian into coding it with a “2” if you have been getting that all along. If they code it “1”, you will need a 5329 to change it to a “2” since it was distributed prior to 59.5.
Do not worry about the 5498 forms, which must be issued every year to report the year end balance. But you might have to deal with the 1099R forms after you see what you get next January. But you should not have a problem here as I see it.
For future moves, I suggest transfers rather than rollovers since in your final SEPP year, the fewer 1099R forms floating around, the simpler your tax reporting and the less chance of questions from the IRS.
2009-04-17 03:01, By: Alan S., IP: [126.96.36.199]
L5: Trustee to Trustee Transfer of IraThank you so much for the additional info. What I understand that you are saying is that the IRS willget 5498’s for both IRA’s but both will only show the Fair Market Amount of the accout in box 5. I believe that the final distribution was only from the original IRA, but I will make sure. Also I am planning to only take distributions from that original IRA at least thru the rest of this year so I will only get a 1099R from it. Isn’t this correct, you only get a 1009R from any distributions? I am not sure I amclear onwhat you said about 3 months being technically better that 4 months distribution. Should they give me two 1099R’s where one is for the first 3 months (or 4) with a 1 coding& another 1099R for the rest of the year coded with a 2 since I am over 59 1/2? Are you saying it would be better to have that last month (the 4th) coded a 2 since it is the month I turned 59 1/2 even though I technically received the distribution before the day of the month (22)I turn 59 1/2? Since it is the last month that the IRS won’t be as sticky about exact dates?I hope this is clear. I thank you again for the info. You have really set my heart & mind at rest about this.2009-04-17 16:22, By: Viv, IP: [188.8.131.52]
L6: Trustee to Trustee Transfer of IraThe 4th monthly distribution is part of your SEPP since it was distributed prior to age 59.5, and therefore it must be reported under Code 2. If it comes out as a 1, use the 5329 to change it to Code 2.
All distributions from either IRA account as of the date you turned 59.5 or later should be coded as “7” which is a normal distribution.
IRA custodians have adopted all kinds of internal procedures for coding SEPP distributions, particularly in the final year. In the past, the correct treatment was to issue one for distributions prior to the end of the SEPP coded 2, and the other coded 7. However, most custodians now Code the SEPP distributions as code 1 (early) forcing the taxpayer to change it on Form 5329. Custodians have stopped “underwriting” the accuracy of your plan. Therefore, you could get any number of combinations of 1099R codings next January, and you will just have to determine which 1099R was for which months of distributions. The transfer itself could influence the coding you get from the original custodian.
Next January when you have them, you might want to post back here if there is further complications, but basically, you will use Form 5329 to code all pre age 59.5 distributions from whatever account as a “2”, and the later distributions should be 7 (normal). In summary, filing the 5329 correctly should be your only problem, with no concern about the SEPP itself as long as you received 4 monthly distributions up to now equal to the past monthly distributions you have been taking. And we are also assuming here that your plan was valid from the start.2009-04-18 00:44, By: Alan S., IP: [184.108.40.206]
L7: Trustee to Trustee Transfer of IraAlan wrote the following …
IRA custodians have adopted all kinds of internal procedures for coding SEPP distributions, particularly in the final year. In the past, the correct treatment was to issue one for distributions prior to the end of the SEPP coded 2, and the other coded 7.
I would like to say this a little differently. Like Alan said, custodians have really gotten out of the business of issuing “Code 2” for the SEPP exception because they simply don’t know if your plan is compliant with IRS guidelines. The only thing a custodian can positively determine is when you turn age 59 1/2 … assuming you didn’t lie about your birthdate on your application and there’s no reason to suspect that here. Because of this, most custodians I deal with will issue two Form 1099-R’s for distributions taken in the year you turn age 59 1/2. The first 1099-R will be “Code 1” for distributions prior to your age 59 1/2, and the second 1099-R will be “Code 7” for “Normal” for distributions after you turn age 59 1/2. If you use a tax program like Turbo Tax, simply input each Form 1099-R and the program will take care of the details.
Jim2009-04-18 03:18, By: Jim, IP: [220.127.116.11]