72(t) IRA Rollover
I have a prospect who wants to leave their old advisor, but she’s taking 72(t) distributions from her IRA. Can I open a new account and rollover her IRA without it being a modification? If so, what are common pitfalls to avoid in this sitaution?
Permalink Submitted by Alan - IRA critic on Wed, 2025-01-22 19:12
This can be done, but carefully.
The entire balance from the old account(s) should be directly transferred to a new IRA account with no prior balance. Or if the existing plan incorporated more than one IRA account as some plans do, the entire balance of all those accounts should be transferred by direct transfer OR left untouched until the plan ends.
The calculation used to initiate the 72t plan should be reviewed for accuracy, and for most plans a fixed dollar amount is distributed each year. The amount distributed from the new IRA must be the difference between what was distributed from the current IRA(s) this year and the full annual calculation.
Be alert for any unique characteristics of the plan, such as the use of more than one IRA account, a Roth conversion. etc. The new IRA custodian should be aware that the new IRA continues an existing 72t plan, and what the modification date will be. While the plan is between the prospect and the IRS, a knowledgeable custodian may help to avoid an execution mistake. Either way, the custodian will probably not code the 1099R with the 72t penalty exception code, and the prospect will then have to file a 5329 each year to claim the exception.
The distribution pattern during the year does not matter from year to year, but the total distribution (all the 1099R forms) must equal the exact annual amount. It will be simpler if there has NOT yet been a distribution in 2025 and there will be only one 1099R.