72t question
I have a prospect that has $500,000 in an IRA. He is currently 56 and started a 72t distribution 2 years ago. His amount coming out is $25,000 a year. He is concerned with the current stock market and was wondering if he could move $200,000 from the current IRA into a fixed index annuity IRA? Or does he have to leave the current IRA alone until the 5 years is completed?
Permalink Submitted by Alan - IRA critic on Wed, 2018-06-13 15:25
There is a small amount of risk regarding partial transfers of IRA accounts during an active 72t plan. While the risk is low and direct transfers are not reported on a 1099R or 5498, the IRS has busted a couple 72t plans for partial transfers (PLR 2007-20023, PLR 2009-35044). Perhaps they noticed the different account number on the 1099R. The explanation from the IRS did not particularly make any sense with respect to busting those plans. However, a full transfer would be safer and also is best done after the full distribution for the current year has been completed. If a partial transfer is chosen, it is best to keep taking the distributions from the original IRA account and leave the annuity untouched until the 72t plan ends so that the 1099R forms continue to show the same account. Of course, prospect could also purchase brokered FDIC insured CDs for 200k for various terms if his IRA custodian offers them. APYs are rising (nearing 3% for a 2 year CD) and if held to maturity a CD is guaranteed not to lose money, and this would avoid any transfer.