Transfer of 72(t) Assets
Client wants to transfer 100% of his 72(t) IRA to another custodian. Have we heard anymore on the recent PLR on theis subject?
Client wants to transfer 100% of his 72(t) IRA to another custodian. Have we heard anymore on the recent PLR on theis subject?
Permalink Submitted by Alan Spross on Fri, 2007-09-07 01:06
Unfortuneatly, yes. Attached is a copy of the nearly useless IRS response to Bill Stecker’s request for IRS clarification of the ruling.
“For example, a trustee to trustee transfer of a portion of an IRA from which a series of substantially equal periodic payments has been launched and a subsequent failure to continue to include the account balance of the transferee IRA in the chosen methodology may cause a modification to such series that would result in the imposition of the 10 percent additional tax under Code section 72(t)(1).”
It’s useless because the taxpayer did NOT fail to include the transferee IRA in the methodology, so it appears that the IRS is grossly confused on both the original ruling and the request for clarification.
I guess this boils down to whether the IRS considers a full transfer to be a “portion” or not. In view of the current landscape I would ask client:
1) Does he believe that the prospect of better investment results trumps the risk of busting the SEPP. How much better does it have to be?
2) How close to the inception of the SEPP is he? If only a year in, the risk is much less than if he is over half way to the modification date.
3) Is client already getting a 1099R exception code 2, or is he having to claim it on Form 5329 inviting additional IRS scrutiny?
So far there has been no reported increased frequency of IRS inquiries into plans that have had prior transfers. That being the case, the chance of having the IRS look at any part of the return could play a part. If the rest of the return is not audit prone, a full transfer may not be much of a risk.
Permalink Submitted by Al Fry on Fri, 2007-09-07 01:19
TKU. I think all we wanted to know was whether IRA Y was an existing one with assets in it or not. If it had existing assets, then the ruling made sense. If not then it seemed like it was an improper ruling.
Permalink Submitted by Alan Spross on Fri, 2007-09-07 03:34
It did not have existing assets, and therefore the transfer should have been OK.
Just speculation on my part, but 2002-62 also says that a modification occurs whenever a portion of an account is transferred to another retirement plan. It was generally accepted that “another retirement plan” meant another type of plan such as an employer plan, not another IRA account or even a Roth IRA in a conversion. The definition of “another retirement plan” may now be interpreted as another retirement account, and thus the ruling of modification in 2007-20023.