72t Substantially Equal Periodic Payments
My advisor takes his fee directly from my rollover IRA.
I am going to start taking 72t distributions from this account this month
under the SEPP provision. If my advisor continues to take his fee from
the account will this cause a problem with meeting the IRS withdrawal rules?
My advisor also makes trades within the account, selling some positions
and buying others and investing cash distributions. Will this activity cause
any problems in meeting the IRS rules for this account?
Permalink Submitted by Alan - IRA critic on Sat, 2015-01-17 21:50
Neither will cause a problem with your 72t plan because neither is reported as a distribution from the account on Form 1099R. The 1099R total distributions will be what you report on your 1040 and the IRS expects to match your calculation. By taking the fee directly from your account, you are paying with pre tax money. In other words, your IRA balance is being reduced without a taxable distribution. If you were to be billed separately from the IRA and paid the advisory fee from your other funds, your IRA would not be reduced as fast, but you would be paying with after tax money. You would not want to do the latter unless possibly you are already itemizing deductions and your misc deductions were already equal to 2% of your AGI before the fees. In that situation, paying the fees from outside funds would also be pre tax because you could itemize the fees paid and reduce your taxable income. In most cases, you are better off to have them deducted directly from the IRA.