Permalink Submitted by Alan Spross on Wed, 2008-12-24 17:52
Yes, the account could be partitioned, basically spinning off part of the original account to a new account having no prior balance. This is best done by direct transfer to avoid using up the one rollover permitted per year. Keeping the rollover available is a good safety valve to correct 72t administrative errors.
After partitioning, the 72t distribution can be taken in any portion from one or both of the accounts, although this will almost certainly eliminate any current exception coding on the 1099R. A 5329 will need to be attached to the tax return to claim the 72t exception.
That said, there was a PLR last year (PLR 2007 20023) in which the IRS busted a 72t plan for doing a partial transfer. This ruling has never been adequately explained by the IRS, but it can likely be considered an aberration at this point, since there has been no further busting of plans and thousands of these partial transfers have been done every year for the past several years. Still, you should be aware of that ruling, since there is evidently a very small but unmeasurable risk in doing the transfer.
Permalink Submitted by Alan Spross on Wed, 2008-12-24 17:52
Yes, the account could be partitioned, basically spinning off part of the original account to a new account having no prior balance. This is best done by direct transfer to avoid using up the one rollover permitted per year. Keeping the rollover available is a good safety valve to correct 72t administrative errors.
After partitioning, the 72t distribution can be taken in any portion from one or both of the accounts, although this will almost certainly eliminate any current exception coding on the 1099R. A 5329 will need to be attached to the tax return to claim the 72t exception.
That said, there was a PLR last year (PLR 2007 20023) in which the IRS busted a 72t plan for doing a partial transfer. This ruling has never been adequately explained by the IRS, but it can likely be considered an aberration at this point, since there has been no further busting of plans and thousands of these partial transfers have been done every year for the past several years. Still, you should be aware of that ruling, since there is evidently a very small but unmeasurable risk in doing the transfer.