It appears that you are planning to do a partial transfer from the original IRA already under a 72t plan into a new IRA holding no prior assets. This will likely not cause a problem as long as the correct annual 72t distribution continues from some combination of the two IRA accounts. Since this is the same custodian, the transfer should easily be done as a non reportable direct transfer.

However, the client should also be made aware that the IRS busted a 72t back in 2007 for doing such a partial transfer. The letter ruling for this was PLR 2007 20023. Attempts to secure a logical explanation from the IRS for this ruling have not been successful, and since there is only one such case, and there has been no follow up on thousands of other such transfers, the ruling can be considered an aberration. Still, there is probably some small amount of risk as a result of this ruling. Note that this case involved a partial transfer, and there would no risk whatever in doing a full transfer.

Client is more likely to have to file a 5329 to claim the exception to the penalty, as most custodians are now coding distributions as “early”. This is easily done and does not send the IRS any “red flags”. Just be sure to have client monitor the total distribution carefully and double check the annual total in early December to make sure that the exact annual amount has been distributed in total over the two IRA accounts.

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