TRANSFERRING A SEPP INTO A TRADITIONAL IRA
The substantially equal payments account was set up to take advantage of a rule in the IRA laws that allow a steady equal distribution to be set up from an IRA without incurring any 10% early withdrawal penalty. It’s not a widely known or utilized option, but it’s in the tax rules, and it worked for you. My sense is the sub equal account was set up to make the desired payments level work at the onset. Can I merge the two accounts into a traditional IRA?
Permalink Submitted by Alan - IRA critic on Sun, 2014-09-14 23:28
Actually, such plans get a considerable amount of use, and you are correct that considerable planning should be applied before starting such a plan. A plan can include a single IRA account or multiple accounts, and it is often recommended that if you have enough funds, to maintain one account for the SEPP and another IRA outside the plan to provide emergency funds if needed. This may help to avoid busting the plan and incurring retroactive penalty plus interest. Are you asking about combining two IRA accounts after the plan has started? If so, you can but only if both accounts are part of the same plan to begin with. You can also combine two IRA accounts before the plan starts and use the combined balance to calculate the SEPP distribution if you do not want to keep one IRA account outside the plan for emergency needs.
Permalink Submitted by Bruce Steiner on Mon, 2014-09-15 18:52
I hope this isn’t done very often. In most cases, it occurs when someone has used up his/her other money before age 59 1/2.