Transfer from an IRA w/ current 72t election
I have a client who has an IRA with Fidelity. He is 57 years old. He started taking payments in 2005 using the 72t election. He would like to do a partial transfer to a new IRA. Are there potholes I should be aware of in assisting him with this partial transfer?
Permalink Submitted by Anonymous (not verified) on Tue, 2009-11-10 17:14
I would say he can [u]not[/u] do a partial transfer out of a plan that is part of a SEPP:
(e) Changes to account balance. Under all three methods, substantially equal periodic payments are calculated with respect to an account balance as of the first valuation date selected in paragraph (d) above. Thus, a modification to the series of payments will occur if, after such date, there is (i) any addition to the account balance other than gains or losses, [b](ii) any nontaxable transfer of a portion of the account balance to another retirement plan,[/b] or (iii) a rollover by the taxpayer of the amount received resulting in such amount not being taxable
http://72t.net/RevenueRuling2002-62
pmk
Permalink Submitted by Alan Spross on Tue, 2009-11-10 18:32
RR 2002-62 has historically been interpreted as eliminating tranfers to another TYPE of retirement plan, ie from an IRA to a QRP or vice versa. Thousands of 72t participants have done both total and partial transfers over the years without incident. Then, out of the blue the IRS came out with PLR 2007 20023, which busted a 72t plan for doing a partial transfer to a new IRA account. The IRS was unable to provide a useful explantion of this ruling. Earlier this year, they came up with yet another adverse ruling on a partial IRA to IRA transfer as well, although that one had extenuating issues. There does not seem to an an issue with a total IRA to IRA transfer within a 72t plan including a Roth conversion, which has previously been approved by the IRS.
Therefore, while the odds appear to be in favor of a partial transfer with no consequences, the mixed signals are a reason for concern. If the partial transfer is done directly there should be no 1099R reporting, so the IRS would have to use other means to even know there was a transfer. Getting a 1099R for 72t distributions from more than one account might tip them off even though accounts within a given plan can be aggregated for 72t distribution purposes, just as they can be for RMDs.
In summary, there IS a slight risk in doing the transfer. Being 4 years into the plan with just 2 years to go, I would advise against the transfer unless the investment opportunities trump the risk.
Permalink Submitted by steve harper on Wed, 2009-11-11 06:23
Thanks very much for your insight. I am always amazed with the answers I receive from the guys on here. Alan is a gosh darn genius! Much appreciated!!