SEPP rules
A client wants to establish a 72(t) for her IRA, but wants to take occaisional lump sums for education in addition to her regular payment. Her accountant says she does not need to set up two separate IRAs. Can you point me to the regs that explain what constitutes “busting” a SEPP plan? Thanks, Susan
Permalink Submitted by Susan Mims on Wed, 2007-08-22 19:33
In trying to read 72(t), it appears that maybe educational expenses could come from the IRA set up for SEPP without busting the SEPP. Is that correct? Also where does it say that you can’t add money to the SEPP IRA once the SEPP is established? Thanks, Susan
Permalink Submitted by Ken Fitzgerald on Wed, 2007-08-22 21:25
From all I have read on this I am listing below, which is specifically for
72(t) questions–
http://72t.net/Discussion/ViewPosts.aspx
You cannot add monies, or transfer monies or take extra monies out of any IRA that is part of a 72(t) plan until you have passed the minimum of 5 yrs (at least 60 months passing since first payment) and attained age 59 1/2. Check some of the older posts on this website for more info about “busting a SEPP” or 72(t). I think the accountant she is consulting is out of their league.
KEN
Permalink Submitted by Ken Fitzgerald on Wed, 2007-08-22 21:50
If you go to that 72t website I listed in my previous post, and go back to a 7-12-07 post by Rich D, it has answers to your question. Alan S and Jim are very knowledgeable on 72(t) (and many other subjects), as are the other posters to that site. To scroll back thru older posts, change the 3 month option at top of that screen to at least 12 months, and check off “show all records”, then when screen refreshes, you can use page down (OR DOWN ARROW) to go back an entire year (or more if you enter higher # of months) while looking for subject that matches your question. Ken
Permalink Submitted by [email protected] on Thu, 2007-08-23 14:27
Because of the IRS’s agressiveness in this area, I would play it safe and have two IRAs, one for 72(t) SEPP purposes, the other one for the educational purposes.
Permalink Submitted by Alan Spross on Thu, 2007-08-23 20:34
Even Pub 590, which contains very little info on the “Annuity” or SEPP exception, indicates on p 53 that only the reasons of death or disability result in excusing the recapture tax for changes in the SEPP distribution.
A separate IRA account is appropriate here to supply the education distributions which may meet the education exception, while the IRA account designated for the SEPP must continue to issue distributions in the exact amount of the original SEPP documentation of calculations.