could 72T f rom one IRA be funded from another IRA?
Hello,
our client has 2 IRA accts and one has had a 72T for some time . client is only 55 and want to continue the 72T till they are 591/2. just in case if they run out of money in the one IRA with the 72T could they fund that IRA from another IRA to keep the 72T going?
Permalink Submitted by mk foss on Mon, 2011-01-31 19:02
The IRA account that funds the 72(t) payments cannot be touched – usually people just worry about putting new money in or taking other funds out – but this idea is just as bad.
If the 72(t) payments cause the IRA to go to zero – there is no penalty associated with that. If she needs additional funds with no remaining balance in that particular IRA and she’s still under 59-1/2 she’ll need to rely on another exception to the 10% pnealty, start a new 5-year stream of substantially equal periodic payments or pay a 10% penalty on withdrawals.
Permalink Submitted by Alan Spross on Mon, 2011-01-31 21:08
You might verify with the client that this second IRA was never included in the original account balance for the 72t calculations. Some taxpayers use more than one IRA account to fund the plan, but then only take 72t distributions from ONE of those accounts. In that case, after a few years, they may forget that they used a balance from more than at that can be costly. If a taxpayer does use more than one IRA account to establish the balance, they can transfer funds between the IRAs with no consquence, often as a result of investment strategies. They can also make their 72t distribution in any combination between the IRAs of this was the case.
But if the other IRA has been totally separate from the 72t plan in the past, they cannot be commingled in any form without busting the current plan. As stated, if the current plan IRA goes broke, there is no penalty and the plan ends without further obligations. The choice then is whether to start a brand new plan or not.