72t Change
Can a person currently taking a 72t distribution from one custodian stop the distribution and have it restarted with a different IRA custodian? If so, can the 72t amount be split between two custodians? We have a client taking the distribution from custodian #1, but wants to stop that distribution and split the amount of the distribution between custodian #2 and custodian #3.
Permalink Submitted by Alan Spross on Mon, 2009-04-20 20:33
It depends on how many IRA accounts were included in the initial balance used for the 72t calculations. If a taxpayer has multiple IRA accounts, he can base the 72t plan on any combination of those accounts, and the actual distribution can come from any combination of those accounts also.
Once the plan has started, money from non 72t IRA accounts cannot be transferred into any of the 72t IRA accounts. If the 72t IRA accounts are transferred to new custodians, it must be into accounts holding no prior balance.
From your post, it appears that the client may have been using the balance on all 3 accounts to determine the amount of the distribution. If that is correct, then the distributions can be shifted between the accounts in any combination desired. But even when transfers are allowed and the plan remains valid, the need for a 5329 form to claim the exception will likely be needed, since most custodians no longer provide the 72t exception coding, especially when more than one account is involved and/or the distribution pattern is changed.
If this response does not address the actual situation here, please advise.
Permalink Submitted by Dennis Prout on Tue, 2009-04-21 15:26
If the original 72t plan was based solely on Custodian #1, can the plan still be moved to the combination of custodian’s #2 and #3?
Permalink Submitted by Alan Spross on Tue, 2009-04-21 20:32
If the initial balance for the plan was limited to an IRA with custodian #1, the funds in that IRA can still be transferred to other custodians, but the balance from custodian #1 would have to be transferred into new IRA accounts with the new custodians that had NO prior balance. The 72t plan would then continue with the two new IRA accounts. Extra care should be taken to coordinate the 72t distributions over the two new accounts to make sure that the exact annual amount is taken out for the current year between the new custodians and the amount already distributed by custodian #1. This will almost certainly need a Form 5329 to claim the 72t exception on an 1099R forms that show the distributions as early.