72(t) across multiple IRAs – chapter & verse?
This is one of those things that I know is allowable, but can’t cite anything to back myself up.
Client calculates and runs a 72(t) across two IRAs, using one of the safe-harbor methods. Client wants to draw some of the required 72(t) distribution from IRA #1 and some of the distribution from IRA #2. This is allowable.
Further, these distributions are not required to be proportional, and can be split however the client wants between the IRAs, so long as the total requisite amount is distributed and no additional withdrawals are taken from either account.
Assuming I got all that right, what section of the code, or what reg or revenue ruling backs me up on that?
Please and thank you!
Permalink Submitted by Alan - IRA critic on Wed, 2020-09-09 23:44
All your assertions are correct, but SEPP rules have basically evolved through a combination of IRS enforcement and PLRs. There are no IRS Regs, and RR 2002-62 is the only major RR regarding SEPPs. From the beginning it was clear that IRA account aggregation rules extend to SEPP plans, and account fracturing and aggregation have been part of many SEPP plans for the last 20 years without issue. The concept of a “SEPP universe” is used to describe which of a taxpayer’s IRA accounts are subject to the SEPP rules and which are unrelated to the plan. While aggregation of accounts for purposes of calculating the annual distribution and which amounts can be distributed from the individual accounts has been consistently allowed, it is also true that “simpler is best” when it comes to SEPP structures, so a taxpayer may be better off not using all the flexibility that exists. The less attention to the plan by the IRS, the better.
Permalink Submitted by Robert Vashko on Thu, 2020-09-10 00:02
Thanks. Yes, I prefer the simpler route, too, but in this case, one IRA is an annuity with a living benefit rider. The 72(t) distribution (covering both IRAs) would exceed the rider payout and “blow it up”, so client wants to take just the rider payout from this IRA, and take the balance of the 72(t) distribution from the other IRA (a plain brokerage account).