Combined qp and IRA for SEPP
We have a client who is looking to combine the account values of their IRAs and a 401(k) to create the SEPP stream they desire.
I thought individuals were not able to combine qualified plan accounts and IRA accounts for SEPP. Is this correct?
Permalink Submitted by Al Fry on Thu, 2008-06-12 21:19
Perhaps they want to rollover their 401(k) first.
Permalink Submitted by Alan Spross on Fri, 2008-06-13 03:51
There has only been anecdotal indications that the IRS would not recognize combining different types of retirement plans in a single SEPP. However, they have said that transfers between different types of plans modifies (busts) a plan, which is not particularly reassuring. I would avoid testing the waters.
If there is some compelling reason that a client does not want to complete a rollover before starting the plan or to do a rollover at all, one way to reduce the risk here would be to start two independent SEPP plans, one from the QRP and the other from the IRA. There is no problem having SEPP plans running simultaneously and otherwise totally independent. But if the client wants to start two plans, he also must be aware that he cannot do a rollover until after the plans have terminated. In addition, use of the employer plan may well negate any chance of the use of NUA until post age 59.5.
Since a 72t from a QRP is not an eligible rollover distribution, there should be no mandatory 20% withholding from the QRP.