72t Account Split
I have a Rollover IRA account from which 72t payments have been made for a few years. I would like to transfer about half of the funds from the IRA account to a new self directed Solo 401(k) account and leave the remaining half of the funds with the existing account from which the 72t payments are made. 1. Is such a transfer allowed and are there any restrictions? 2. If I later wanted to have the 72t payments come from the newly created account can I switch the source of the payments from the old account to the new account and, if yes, with what restrictions? Thanks!
Permalink Submitted by Alan - IRA critic on Thu, 2014-02-27 21:17
That transfer to a different type of plan would clearly bust your 72t plan and you would owe retroactive penalty and interest. If you transferred PART of the rollover IRA to another IRA account, you probably would not have a problem, but the IRS has busted plans for that as well in a couple instances. A full transfer of the rollover IRA funds to another IRA would not be a problem, as long as you distributed the correct annual total amount between the rollover IRA and the new IRA.
Permalink Submitted by David Kuntz on Thu, 2014-02-27 21:43
Thanks for the quick response! If I understand correctly, going from a rollover IRA to a solo 401(k) would bust the plan whether it was a partial transfer or a full account transfer because a 401K is not an IRA. Thus, my only two choices are to leave the IRA as is or to transfer the entire account specifically to another IRA (not solo K) account and keep the distribution the same. Am I understanding this right? Thank you.
Permalink Submitted by Alan - IRA critic on Thu, 2014-02-27 21:55
Yes, those are the two safest choices. You would probably also be OK with a partial transfer, but with more moving parts to your plan and the IRS having busted a couple of those plans, I would not do it unless you saw some specific advantage to offset the increased risks.