Splitting an IRA after 72(t) payments have begun
I have a client who is taking 72(t) payments of $8,000 per year from his IRA. He is now 57 years old, and is three years into the 72(t) plan. He has only this one IRA.
This is my question: Can he leave enough in this IRA account to complete those payments, and do a custodian-to-custodian transfer of the rest of the IRA funds into a new IRA account?
He would then have two IRA accounts. The old account would be used to satisfy the 72(t) payment plan, and the other would be used for something else. Can he split an IRA after starting a 72(t) plan, or would that bust the plan?
Thank you for any guidance on this.
Permalink Submitted by Alan - IRA critic on Thu, 2014-05-01 19:17
No clear answer. This was presumed allowable for many years, but then the IRS busted a plan for a partial transfer in PLR 2007-20023. This came out of the blue and the IRS has never adequately explained their thinking. There is no concern about a full transfer, just a partial transfer. Meanwhile many thousands of taxpayers have done these without an issue, so if client wants to take a chance with the partial transfer, the odds of no problem are excellent. The risk is likely reduced if the distributions and therefore the 1099R continue from the original IRA and a trustee transfer is done to move the funds rather than a rollover. Client probably already files a 5329 to claim the penalty exception, but if not then he would probably have to after the partial transfer. If client proceeds, he must remember that the new IRA account is still part of his plan for all respects, and would have the same restrictions as the original account.
Permalink Submitted by Marc Sanders on Thu, 2014-05-01 21:24
Thank you for your answer on both forums. I posted there before I realized I should really start a new thread.So, just to be sure I understand: It is OK if he transfers the entire IRA into a brand new, currently non-exisitng IRA account. He could do a trustee transfer of the entire amount into a new account, and then just continue making his regular 72(t) payments from the new account. It is only the partial transfer that is in question.Do I have that right?
Permalink Submitted by Alan - IRA critic on Thu, 2014-05-01 21:25
Yes, correct.
Permalink Submitted by Marc Sanders on Fri, 2014-05-02 01:13
Thank you very much. I really appreciate all your help.