SEPP and breaking out an IRA

Individual has an IRA at an annuity company and they are taking Substantially Equal Periodic Payments. They would like to break out that IRA into two IRAs. One held at the annuity company and one held at a broker-dealer. Both IRAs would remain under the SEPP umbrella and would continue on the same distribution schedule. Is there a problem with this? Would they risk the split being considered a “modification” of their SEPPs?



There is a slim but real risk that the IRS would bust the plan due to a partial transfer. There are a couple cases where this has happened (PLRs 2007 20023, 2009 25044). Apparently there is no problem with a total transfer however. Two situations out of thousands of these transfers is still excellent odds of success, so individual can factor that into his decision. I would also add that both PLRs make little sense and were never adequately explained. Probably a greater risk is the risk of an execution error due to more moving parts to the plan. If the individual proceeds, it would be best to move the funds by non reportable direct transfer and then take distributions only from the original IRA account. That attracts less attention.



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