72t excess distribution

Submitted by Thomas Phillips on Thu, 2014-08-07 18:55

I have inherited client who is taking 72T distributions. She had been taking them from 3 separate accounts, but decided to take the full amount from just one account. The other two custodians did not stop the distributions so she has exceeded her amount. Neither custodian will accept the funds back. Can this excess be rolled into another IRA to avoid penalties? If that is done her total distribution for the year will be correct.
Thanks for any help.



Submitted by Alan - IRA critic on Thu, 2014-08-07 22:28

  1. Did client have one 72t plan using the balance of all 3 IRAs or did client have a separate 72t plan for each IRA? If this was a single plan, what reason are these custodians giving for not accepting a rollover? Under the aggregation rules, a distribution that exceeds the 72t amount for the year is eligible for rollover, so they cannot decline on the basis the distribution was a 72t distribution. I would push back on these custodians as long as a rollover has not been limited to the one rollover rule per IRA account. Opening a new IRA to accept a rollover will create more moving parts to the plan and would be a partial transfer that has it’s own risks, so would be a last resort.
  2. If the two custodians have not been coding their 1099R with code 2, they have not been “underwriting” the accuracy of her distributions anyway. With a single plan, they are likely using code 1. The plan is between the taxpayer and the IRS, so the custodians should not be taking this position. Seems odd that BOTH custodians took this position. Even if these were separate plans, the taxpayer has a right to bust the plan if they wish.

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