72t with worthless transferring to different B/D
The situation is an IRA account with a 72t arrangement in place at B/D #1 includes a bankrupt investment.
Wish to move the IRA with 72t arrangement intact to B/D #2. We know from correspondence or lack thereof that the bankrupt investment will not transfer to the account at B/D #2.
Will continue the periodic payment amount calculated when the bankrupt investment was viable.
Question is if we will not be considered a modification because the investment that is bankrupt will not move from the account at B/D #1 to the account with B/D #2
Permalink Submitted by Alan Spross on Tue, 2010-04-20 21:54
This would be a partial transfer and would not modify the 72t plan as long as the other assets were moved to a new IRA holding no previous assets. The total annual distribution required of the plan must be taken from a combination of both IRA accounts for the year of transfer. This might trigger a need to file Form 5329 to claim the 72t exception for distributions from both accounts if this had not been needed before.
That said, the IRS HAS issued a couple letter rulings busting a plan for a partial transfer, but have never clarified their reasoning for doing that. Therefore, these two rulings are likely an aberration because these partial transfers have been done by the thousands with only a couple problems noted. If you need to check the primary such ruling, it is PLR 2007 20023.
Many IRA custodians will buy back a worthless investment for a dollar, and if the current custodian will do that, it would make any transfer a total transfer rather than a partial. There is NO question about a total transfer. It is also best to do the transfer directly to avoid a 1099R and to preserve the one rollover allowed per IRA account for emergency uses.