Can a 72t be rolled over?

Submitted by Kenneth Sloan on Sun, 2018-08-19 15:17

I have an IRA with company A and have a 72t attached. I want to move all of the assets from company A to company B. Company A is telling me that I cannot move the assets because of the 72t. When I pressured them they said I have to stop the 72t. I will continue the 72t with company B, but I am afraid that if I stop the 72t with company A it will be reported to the IRS as such and I will have to pay the penalty. Is it okay to stop with company A as long as I start with company B using the same dollar amount that was on the original 72t?



Submitted by Alan - IRA critic on Sun, 2018-08-19 18:14

  • Yes, you can do a complete transfer to a new IRA custodian without affecting your 72t plan as long as your distribution total for the year of the transfer exactly equals the required amount.  Each company will report  the distributions you took on their own 1099R and the total of both forms must be correct. Most custodians already use Code 1 in Box 7, meaning that you must file Form 5329 to claim the 72t penalty exception yourself. If the former custodian is one of the few that provides you with code 2 on your 1099R, they will probably change that to Code 1, but no big deal since you can override that with the 5329 you file.  Not clear whether the rep you talked to is untrained, or is telling you this intentionally to keep you from moving the account.
  • The funds should be moved by a direct non reportable transfer, not by a 60 day rollover. Once the funds have been transferred, simply add up your distributions from the prior custodian, subtract that total from the required amount for the full year, and request a one time distribution from the new custodian for that difference. Do not set up any automatic distribution program with the new custodian until January to reduce the risk of an error that would bust the plan.

Submitted by Kenneth Sloan on Sun, 2018-08-19 22:56

Thanks

Submitted by Kenneth Sloan on Tue, 2018-08-21 13:44

I have only had the 72t in place since February 2018, when I do the roll over if I continue the same amount of withdraw for the remainder of the year will it be ok or will I need to base it off a 12 month?

Submitted by Alan - IRA critic on Tue, 2018-08-21 16:55

You need to have the total distributions taken from both custodian equal your 72t calculation, unless you decided to pro rate the first year due to Feb start. In that case you could take 11/12 of your annual calculation.  The relative amounts taken out between the two custodians does not matter, and the pattern of distributions (random, monthly, quarterly etc) does not matter either. Only the correct total matters. If you decide to set up automatic distributions, avoid the first 7 days of the month and the last 7 days, so year end holidays and weekends do not result in errors. 

Submitted by Kenneth Sloan on Wed, 2018-08-22 13:15

Thanks again 

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