My client has 2 IRA’s at two separate companies He is taking a 72T from IRA #1. My question is this. Can he transfer IRA #2 to another company and set up another 72 T without incurring a 10% penalty for potential remodification? We only using IRA #1 for his 72 t distribution.
If he decides not to set up another 72t can he take money out of IRA #2 after reaching 59 1/2 even if he has the first 72t in place?
Yes, he can do whatever he wishes with an IRA account that is not part of a current 72t plan. For example, he can use it now for emergency needs and while distributions will be subject to penalty having this separate account provides a way to get additional distributions without busting the current plan. After 59.5 there will be no penalty and even before 59.5, it is possible that another penalty exception could apply (eg high medical deductions, higher education, etc).
RCSMITH- You said “He is taking a 72T from IRA #1.” Have you confirmed that his initial IRA balance that was used to calculate his 72T plan payments only included the fund balance in IRA#1 ? I have seen instances posted in forums where the balance from two different IRAs held at two different companies were the combined as the total to compute the plan payments, (for higher payouts) even if only IRA #1 was where all the disbursements came from. If that is the case, he cannot do another 72T plan with IRA #2. You should check on that before thinking you could use IRA#2 for a second 72t Plan.
Permalink Submitted by Alan - IRA critic on Thu, 2017-09-21 00:46
Yes, he can start a second 72t plan using IRA #2, whether at the current custodian or a new custodian. If he transfers it to a new custodian his initial balance used in the calculation will have to be a balance at the new custodian. If he starts the new plan at the current custodian he can use a prior balance such as the 6/30 balance. Each 72t plan is totally separate from any other such plans meaning that if he busts a plan it will not affect the other plan.
Permalink Submitted by Robert Smith on Thu, 2017-09-21 14:25
Does it matter which IRA account the distribtion comes from as long as it meets his SEPP?
Permalink Submitted by Alan - IRA critic on Thu, 2017-09-21 15:40
Yes, it is critical. If there are to be two plans, two different IRA accounts must each distribute the required amount each year. On the other hand, if there is only ONE plan set up for multiple accounts it does not matter which IRA account the distributions come from. In your example since there is already one plan existing that cannot be revised, a second plan will have to be set up with a different IRA account and each plan is totally separate from the other plan.
Permalink Submitted by Robert Smith on Thu, 2017-09-21 19:12
So if I understand this correctly. If he has 3 IRA’s and IRA #1 is the 72t acct. He could take distributions from theIRA #2 and IRA #3 to meet his SEPP? I don’t I am going to set up another 72t. Just keep the original.
Permalink Submitted by Alan - IRA critic on Thu, 2017-09-21 22:54
No, not correct. He can take distributions from the other 2 accounts, but they will not count toward the SEPP distribution from IRA 1 because when the IRA 1 plan was started, only the balance in IRA 1 was used to calculate the SEPP distribution. If distributions from the other two are needed they will be subject to penalty, but could save the SEPP from being busted because distributions from IRA 1 must be limited to the amount of the SEPP Distribution already calculated. You would not set up a second or third SEPP unless you thought that a considerable additional amount would be needed for at least 5 years. If a one time additional distribution is needed then it would not justify starting a second plan, just take the additional from 2 or 3 and pay the penalty on the additional amount.