Moving An IRA With A 72T Distribution From One Trustee To Another

Submitted by Laurie Davies on Mon, 2015-11-02 23:12

I am receiving a yearly 72T distribution from an IRA that is currently held at Merrill Lynch. I also have a smaller IRA at Merrill Lynch which is not tied to the 72T. I would like to transfer both IRA’s to Vanguard, but am concerned that the IRS would view this transfer as busting the 72T and I would be liable for penalties and interest. Vanguard is not that helpful and I want to insure that it is done correctly. I have deduced form the internet that proper coding when doing the transfer is important, but know nothing about this. Any answers are greatly appreciated.



Submitted by Alan - IRA critic on Tue, 2015-11-03 02:24

You can transfer both IRA accounts to VG and not bust the 72t plan as long as the IRA accounts remain in separate accounts at VG. In no event can they be combined into a single account. If you have not had to file a 5329 in the past to claim the 72t exception, you certainly will after the transfer.

Submitted by Laurie Davies on Tue, 2015-11-03 12:47

I always received a 1099 in the past from Merrill Lynch. What is a 5329? Thanks for the advice on keeping them separate. Perhaps it would be prudent to move the larger ( $1.6 million) first, draw the Sepp on Jan 1, and then move the smaller ($36,000). Also, are you familiar with coding that needs to be done? Thanks for the advice. This forum has proved to be the best source of advice I can find. 

Submitted by Alan - IRA critic on Tue, 2015-11-03 15:46

Most IRA custodians including VG do not underwrite the accuracy of your 72t distributions and therefore code the 1099R with code 1 in Box 7, but perhaps ML had been showing code 2 in Box 7. If you get code 2 you do not need a 5329, but if you get code 1 as will be the case with VG, you need to override the code 1 with a Form 5329 showing exception code 02 on line 2 of the 5329. This tells the IRS that the penalty does not apply because your distributions met the requirements of a 72t plan distribution. As for the mechanics of the custodian change be sure to move the funds by a non reportable direct transfer (not by 60 day rollover), and keep the accounts totally separate. Other than that the order of the accounts moved and from which custodian the 72t distribution is taken does not matter.

Submitted by Laurie Davies on Tue, 2015-11-03 21:46

Thank You! 

Submitted by DIANE HEIDE on Thu, 2016-12-15 20:14

So, I’m understanding no new paperwork, no new calculations. Just move the IRA fund by a non-reportable direct transfer, verses a rollover, and make sure I file IRS form 5329 with my year end taxes if coded with 1 in box 7. My 1099-R has been coded with 2 in box 7 all these years, but I’m moving to Fidelity and they said they would code it with box 1. This won’t create a problem anywhere, right? Also, I turn 59 1/2 in July of 2018 and I have had the 72t since 2010. My draws are every January on an annual basis. Would I have to take my last draw in 2019, or would 2018 be my last draw? I want to stop my distributions once I’m 59 1/2. How much time should I allow for the transfer? 2 days, 1 week, 10 days? Thank you so much!!!!!!

Submitted by Alan - IRA critic on Thu, 2016-12-15 20:44

  • Filing the 5329 should not be a red flag because the majority of 72t plan participants have to file a 5329 to claim the penalty exception. Getting the 2 code is the exception.
  • In 2018 prior to reaching 59.5 you will have 3 options with respect to your final SEPP year. You can take out a full annual amount, take a pro rated amount of 50% of your annual amount, or take out nothing. After July, 2018 your plan is over and your distributions are unrestricted.
  • A direct transfer should not take over 10 days, but the time depends on both sending and receiving custodians acting efficiently. I assume you have completed the entire 2016 SEPP distribution at ML. Would not request the transfer until 2016 distributions are complete. After VG has the accounts, you can determine when to start with the 2017 SEPP distributions.

Add new comment

Log in or register to post comments