Can a 72T distribution be undone?

Submitted by Philip Detlefs on Tue, 2013-08-06 19:49

Once a 72T distribution has been established for a particular IRA, can it be undone? If not, Is it possible to transfer the IRA from one custodian to another and keep the 72T going?



Submitted by Alan - IRA critic on Tue, 2013-08-06 20:54

  • It may be possible to abort the plan or modify it if done early enough, probably no later than the first distribution since only one distribution can be rolled back to avoid taxation and penalty. Modification is a little more flexible if you catch a calculation error before the first year is over. If a new custodian is desired, a transfer of the entire IRA (not a partial) to the new custodian is not a problem, although it will probably end the SEPP exception code on the 1099R if fortunate enough to be getting those. Taxpayer would then have to file a 5329 to claim exception code “02”, but most SEPP participants have to do this anyway. Taxpayer would have to be very careful to be sure that the total of the transfer year distributions exactly equals the annual requirement. Doing a partial IRA transfer is more risky since the IRS has busted at least two such SEPP plans for partial transfers, notwithstanding that they never questioned thousands of other partial treansfers.
  • Another possibility if the taxpayer simply realizes that the first plan is inadequate is to voluntarily terminate it early, pay the 10% penalty on distributions already taken, and then start a new 72t plan (eg if new IRA assets are available to be included to bump the distribution amount, or if taxpayer wants to reduce the distribution they can make a one time switch to the RMD method and keep the original plan with no penalty.


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