Clarification with 72(t) custodian transfer
It is my understanding that when switching custodians on an IRA that already has a 72(t) SOSEPP active, there is no modification given that nothing changes. If there is a surrender charge on the annuity in the custodian the funds are coming from, this is just a change in fair market value, not a modification, correct?
Thanks
-J
Permalink Submitted by Alan Spross on Mon, 2009-08-17 21:45
Right. A direct transfer of the remaining IRA annuity funds should not be reportable. However, an indirect rollover of the IRA annuity proceeds will generate a 1099R and a rollover will have to be reported on Form 1040. The 72t plan is still OK as long as no part of the required annual distribution is rolled over. In other words, gross 1099R totals less rolled over funds must equal the required 72t annual distribution.
If there is no rollover, just an IRA annuity surrender, the 1099R should only show the actual amount distributed to the taxpayer. That amount would be part of the annual 72t distribution. If it exceeds the annual amount, then a 60 day rollover must be done in order to avoid busting the SEPP plan.
On the other hand, anyone with a 72q SEPP plan using NQ annuities should NOT consider a 1035 exchange because of the arcane tax rulings requiring various waiting periods in taking distributions in order to preserve the tax free benefits of the 1035. The 1099R reporting may well end up busting the 72q plan.
Permalink Submitted by Joseph Arsenault on Tue, 2009-08-18 15:12
Thanks Alan. Helpful as usual!