72t and Company to Company Transfers
If an individual starts 72t distributions from an IRA, can the individual later move the the IRA to a new custodian, as long as the net amount required to be withdrawn for 72t distribution does not change?
If an individual starts 72t distributions from an IRA, can the individual later move the the IRA to a new custodian, as long as the net amount required to be withdrawn for 72t distribution does not change?
Permalink Submitted by Alan Spross on Thu, 2007-10-18 18:46
Unfortuneately, we do not know for sure because of the questions surrounding IRS PLR 2007 20023. In this ruling the IRS busted a SEPP plan as a result of a partial transfer, even though the transfer went to a fresh new IRA account. So far, the IRS has not issued a lucid explanation for this ruling, which is inconsistent with prior rulings.
The risk is much less for a total transfer, but there is probably still some question whether the PLR would have been the same for a total transfer or not. On the positive side, there is no evidence that the IRS has been busting any other plans out there and there have been thousands of them that have done transfers in the past few years.
That said, a transfer also presents the added exposure of missing the exact amount of the annual distribution, and will almost certainly end the 1099R exception coding if the individual is fortunate enough to have been getting that coding from the original custodian.
Accordingly, this is a risk-reward issue. While the risk is relatively small, is it worth the perceived added return? There is also obviously more risk in the final years of a 72t than in the first year because of the cumulative nature of the penalty and interest.