Multiple 72T accounts
If we set up multiple 72t accounts (each with its own calculation and distribution, so they are not aggregated) and the client ultimately needs more cash and takes a lump sum from ONE of the accounts – will penalties apply to just that specific account that he withdraws from, or will it apply to ALL accounts that are under the 72t?
Example:
Account A: $2000/month withdrawals under 72t calculation
Account B: $2500/month withdrawals under 72t calculation
After 2 years, takes $100,000 lump sum distribution from Account B. Continues to take $2000/month from Account A as normal.
He will have penalties on Account B, but will they also apply to Account A?
Permalink Submitted by Alan Spross on Thu, 2009-09-10 22:14
Each SEPP plan (not account) is independent of other plans. Therefore, if one plan is busted, the retroactive penalty and interest only applies to that plan and not to other plans. Each plan may contain any number of actual IRA account numbers.
That said, multiple plans that begin in the same year are rare, and may be prone to execution error, although they do hedge the bet with respect to the cost of busting a plan.
If a client has enough funds to keep an IRA outside of a SEPP plan, that IRA could be used for emergency distributions subject to penalty (unless a separate exception eliminated the penalty). The non SEPP IRA account would serve as a safety valve to preserve the SEPP plan. But if there are not enough total IRA funds to meet living expenses, using two separate plans could provide some insurance against a larger busted plan.
Once a particular plan is busted, the plan ends and a new decision must be made whether to start another SEPP plan with those funds or not.