Emptying an IRA account
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The husband has a large SEP-IRA and a much smaller rollover IRA. The wife has a large rollover IRA and a much smaller SEP-IRA. They are just beginning to take RMD’s this year and have asked me if there is any reason that they shouldn’t take all of the RMD’s from the smaller accounts, until those accounts “zero out,” leaving him with the SEP and her with the rollover. Put another way, is there any advantage for either of them to keep the second IRA account? I know just enough to ask people who do know, namely yourselves.
Any help on this would be appreciated.
Permalink Submitted by Alan Spross on Tue, 2011-03-22 19:35
Since RMDs can be aggregated between traditional, SEP and SIMPLE IRA accounts, there is no reason why this cannot be done. The RMD calculations for each IRA account should be added together to determine the total RMD, which can then be distributed in any combination between the accounts. Another option is to simply combine them by direct transfer. The SEP is only needed if SEP contributions can still be made.
Once SEP contributions can no longer be made, the SEP IRA is treated as just another traditional IRA account and the RMD rules are identical.
Permalink Submitted by Geoffrey Foisie on Wed, 2011-03-23 03:07
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And do I understand correctly that even after 70 1/2, contributions to a SEP are still tax deductible, if they meet all other requirements?
Permalink Submitted by Alan Spross on Wed, 2011-03-23 03:32
Yes. At 70.5 a SEP IRA can accept contributions SEP contributions (but not TIRA contributions) but RMDs are also required.
Permalink Submitted by Geoffrey Foisie on Wed, 2011-03-23 13:24
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Thanks Alan,
You didn’t mention the deductibility part. That’s what I was wondering about.
Permalink Submitted by Alan Spross on Wed, 2011-03-23 20:20
A SEP contribution is always deductible, and if more than the allowed amount is contributed, it is an excess contribution. A TIRA contribution to a SEP IRA may or may not be deductible, but at 70.5 a TIRA contribution cannot be made to the SEP. So Yes, a valid SEP Contribution will be deductible.
Permalink Submitted by Geoffrey Foisie on Wed, 2011-03-23 21:33
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Thanks very much.