72T Transfer

Submitted by Scott Lojewski on Sun, 2017-10-29 18:00

I am going to move and IRA with a 72T plan that was started back in June 2017, I have read that it is best to do it in Mid November and I have also read that it is best to do it after January of next year, can someone clarify that for me.

I am going to be changing the distribution to the RMD should I do that before I move the IRA or after I know my current advisory can get that done, but If I wait till I move it to the other custodian how would I have the distribution changed to the RMD would the new custodian get that done. Also taxes are being taken out at 10-15% per month would that stay the same or dose the new custodian or myself have to fill out forms and such.

I may be going back to work if the company I had an interview with two weeks with hires me. I worked for them for over 25 years then they sold to another company that I retired from so after 6 months I would get my 5 weeks vacation and all benefits back. Can I abort the 72T and pay a 10% penalty on distributions I have already taken or would I pay a 10% penalty on the whole amount in the 72T I know I can just keep taking the RMD and put that back into another IRA I was just wondering.



Submitted by Alan - IRA critic on Sun, 2017-10-29 18:34

  • You can voluntarily bust your 72t plan at anytime without permission from anyone. Of course, you would owe the 10% penalty on all distributions already taken under the plan, but you are only 5 months in so the penalty would not amount to much. You will not owe a penalty on distributions you would have taken had you continued the plan.
  • I don’t know why you would not at least wait until the job decision is finalized. While not 72t related, if you received a severance package from this company for a period of time that has not passed at your rehire date, the employer would probably require you to refund the amount of severance you received for the amount of time after your rehire. 
  • While the IRS has not specifically disallowed a mid year switch to the RMD method, it only makes sense to make that switch effective only on Jan 1. Similar to busting the plan, the one time switch does not require the IRA custodian’s permission, you would just do your 2018 calculation, keep the documentation of that calculation in case the IRS inquires about it, and change your distribution amount effective Jan 1. Roughly, your distribution would be reduced by around 35%. Any new custodian may want you to fill out new withholding forms.
  • A November transfer date makes sense only if you have completed your entire 2017 distribution amount. January would also work if you stop all distributions from the old custodian as of 12/31. With a 72t plan, simplicity is best. Too many custodian changes as well as other changes increases the risks of error and busting the plan. It also invites IRS inquiry. Therefore, if you are changing custodians and switching to RMD you certainly do not want to have coordinate a change of distribution with either custodian. You should finish your 2017 fixed dollar distributions with the old one, then start out fresh with the new custodian using the RMD method. Remember that the RMD method requires a new calculation each year, updating your age and account balance. Best to use the 12/31 account balance to calculate the following year’s distribution. 
  • Not sure what you meant by taking the RMD distribution and putting it in another IRA. That would be a rollover and you cannot roll a 72t distribution over.

Submitted by Scott Lojewski on Mon, 2017-10-30 13:06

Thank you for the information, I am going to move to a new custodian for sure, as far as the new job if I do get it then I may pay the 10% penalty on the little I have taken and stop it in January, but I will wait till I find out if I do get it or not but if I do not get the new job I will change to the RMD in January as you have suggested. Thanks again

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