Transfer of IRA account with SOSEPP
A client with a date of birth of 6/30/1957 currently has two IRA accounts in managed accounts at a broker dealer. He has been taking annual payments under 72(t)(2)(A)(iv) – equal periodic payments for the last seven years, including an annual payment this year – from one of the IRA accounts to avoid the 10% penalty for distributions before age 59 1/2. Can he make a trustee-to-trustee transfer of the entire balance of the IRA with the SEPP into an annuity without being subject to recapture under 72(t)(4)(A) before age 59 1/2?
I understand that a partial transfer constitutes a modification and therefore would break the SEPP and subject the client to the 10% penalty and additional taxes going back to the initial payments.
Permalink Submitted by Alan - IRA critic on Mon, 2016-06-13 20:44
You indicated that SOSEPP distributions were taken from only one of the accounts, but it is possible to do that even though the SOSEPP plan is calcaluted using both accounts. If both accounts were used initially to determine the distribution amount, then both accounts must be transferred to the annuity. However, if the initial calculation account balance only used the IRA from which the distributions are being taken, then only that account must be transferred in full to the annuity IRA. That said, since this SOSEPP is completed in just over 6 months from now, why not just wait till early 2017 to purchase the IRA annuity, even though a proper transfer could be done now? Finally, note that since this is the final calendar year under this plan, client has the option to distribute either the full annual calculation or nothing.