72T Transfer

Submitted by Scott Lojewski on Thu, 2017-10-05 14:59

I currently have a 72T program that I have with one custodian but am thinking of moving it to Vanguard IRA and going to a hourly advisor instead of a percentage base fee. I have another IRA that is for growth that I do not want to touch for 7 years as well as the one I am drawing from.

1. I can just set up one IRA with Vanguard and have them move the one 72T IRA to the new one, I have been drawing now for three months and I do have taxes taken out each month will that stay the same or is there some forum I will have to fill out to have taxes taken out each month.

2. If I decide to change the withdraw amount to the RMD the fist of the year how is that done

3. Or should I hire someone to overlook the transaction and if so what kind of a person would I be looking for.

4, Will Vanguard contact my financial advisor or where the funds are held or both parties and how long dose the transfer take to complete if I want to have it done in January for the new year when should I start it.

Thanks for any help.



Submitted by Alan - IRA critic on Thu, 2017-10-05 16:38

  1. Check with Vanguard on how best to set up your withholding. You may have to elect a whole number % and there could be a minimum. Most  importantly, be sure to remember that with a 72t plan, you must track your gross distributions, not the net distributions. 
  2. For the one time switch to the RMD method, just document your new calculation and use the 12/31 balance of the IRA. You would probably use the single life table because it will generate a higher distribution since the RMD method will roughly reduce your payout by around 35%. You do not have to report this to the IRS, just keep careful documentation of your calculations for each year in the event the IRS inquires why your distribution is changing each year.
  3. Very few people understand 72t plan rules. You should probably educate yourself using the tools on this website so you will have an idea whether an advisor really understands 72t plans. Thinking of doing the one time switch to the RMD method only 3 months into the plan is an indication that you did not plan this out too well in the first place. With 72t plans the fewer changes the better because they all increase the risk of error and IRS scrutiny. Vanguard may provide limited support, but these plans are basically between you and the IRS.
  4. Provide Vanguard with an IRA statement that shows your custodian and account number as well as the investments. They may not be able to transfer certain investments if the advisor put you into  any non standard investments, but they can tell you if there are any problems. Vanguard can then contact the IRA custodian directly to initiate the transfer, but the former custodian will probably contact the advisor before releasing the funds. Normally, these transfers can be done within 2 weeks. Be sure your 2017 distributions are completed by around 11/15 and then proceed to work with Vanguard on the transfer. That allows for 6 weeks to get the transfer done just in case a problem arises. You do not have to do this at year end, it just allows you to complete the annual distribution with the first custodian and start fresh with the new custodian for the  following year.

Submitted by Scott Lojewski on Thu, 2017-10-05 18:42

Thanks for the reply and information within, the reason I may change to the RMD is I will not be paying close to 1k a month to my finiancial advisor but I do know I can put the extra in other investments

Submitted by Alan - IRA critic on Sat, 2017-10-07 20:15

It is not clear exactly how your fee agreement works. However, the advisor fees should be paid directly from the IRA to the advisor, and these distributions are not reported on Form 1099R. Therefore, while the fees do reduce your balance, they would NOT affect the 72t plan. Therefore, eliminating the advisor fees should not be a reason to reduce your 72t distributions or change to the RMD method. You need to verify with the custodian or advisor that the fees are NOT included in the 1099R distributions reported to the IRS, but the advisor should have explained this to you originally.

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