Not a problem as long as you restrict your investment changes to those WITHIN any of the 3 IRA accounts. The way you worded your post, you have only one 72t plan, but you used all 3 account balances to calculate your annual distribution. You can then take that annual distribution in combination from any of the 3 accounts, but you chose to take it equally from each account.

Again, there are no restrictions to changing investments within any of those 3 IRA accounts.

If you were to create a new IRA account either in addition to the 3 or to replace one of the 3, you are also probably OK. However, there the IRS did rule in 2007 that a partial transfer to a newly created IRA busted the plan. Upon request for a technical explanation, they couldn’t come up with a rational explanation. This is just one case and is most likely an aberration, but thought you should know about it in the event you considered such a transfer.

You did not say your age, but if you will reach 59.5 by January, 2011 you plan will end then. If not, you need to continue the plan until the year you will reach 59.5. In that final stub year, you will have various options for distributions that meet 72t requirements.

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We need to define the difference between investment account numbers within an IRA and the account numbers of the IRA itself. It is only the actual numbers of IRA accounts that matters here, but custodians all have their own unique account platforms. So changing investments within the same IRA is never a problem. Creating a new IRA account number and therefore a new 1099R does carry the remote risk described earlier. But I do not know whether this is the risk he is talking about or not. SEPP participants have done literally thousands of these partial transfers to different custodians and different IRA accounts with no problems, so the risk is very remote. There have only been one or two problems.

There are also total IRA transfers rather than partial and these have never been challenged. That is, an entire IRA is transferred to a new custodian, not just part of the balance. That would allow you to completely transfer the prime account into a new account or accounts. The current prime account would terminate.

1099R forms are just issued on an account level, not for each investment. If each investment gets a 1099R, then each investment has it’s own IRA account. You might check with the mutual fund custodian for the prime account to see if you can change investments all within the existing IRA account #.

Generally though, having too many “moving parts” within a 72t plan increases the risk of both you making an error or the custodian messing up. Creating even more complexity than you have now does carry risks of an IRS inquiry even though you do everything right. If you are closer to the end of your plan than to the beginning or if the potential benefits are small, you might be better off leaving the current structure alone – not because you have to, but to save you the headaches of explaining it all to the IRS in the event they question you on this. In other words, this is more about the potential hassle of the IRS looking into your plan than actually busting your plan.

You need to consider also that if they inquire about your plan, they might find something else wrong totally unrelated to this discussion, a risk often overlooked.

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Thanks. To save myself some time, I am copying the following from my reply to you on the 72net website:

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72(t) SEPP Internal Account Change

Pete,

If I understand your collective responses correctly, you now have 3 IRA accounts that constitute your SEPP plan, and you want to create a 4th account by direct transfer using part of the balance from one of the 3 original IRA accounts.

It is certainly possible that this action could be considered very similar to that which gave rise to PLR 2007 20023. But if you review the analysis of 2007 20023 posted on this site including a request that the IRS clarify their reason for their findings, you will find that the IRS simply cannot or will not explain this ruling. Therefore, most of us consider the ruling an aberration. There has been follow up in the last 3 years, and a few thousand more people have probably uted such transfers over that time period.

Note that if you did not take distributions from the new IRA account, there should be no 1099R for it and no 5498 either. The IRS would not even know about your transfer unless they audited you. You could just distribute your annual amount from the 3 original accounts.

My guess is that this PLR is what your advisor is concerned about, as I cannot think of any other reason for his concern. But the final decision is yours. None of these custodians can stop you from doing a partial transfer if you wish. All they can do is refuse to provide you with the 1099R exception code and they probably are not doing that now. You can file a 5329 very easily and may already have been doing so. You could also do a full transfer of this IRA to the new IRA and still end up with 3 accounts and avoid the partial transfer question that triggered 2007-20023.

In the end, the decision is yours. If it were me I would do it if I expected significantly better investment results as a result of the transfer, but would not do it for an extra percentage or two.

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If I still don’t have your account structure identified correctly, please advise.

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