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If somebody has 3 IRAs and sets up SEPP based on all 3 IRAs, but is just taking distribution from 1 of the 3 IRAS. Can they do partial trustee to trustee transfer between the three IRAs?
If somebody has 3 IRAs and sets up SEPP based on all 3 IRAs, but is just taking distribution from 1 of the 3 IRAS. Can they do partial trustee to trustee transfer between the three IRAs?
Permalink Submitted by Alan Spross on Fri, 2008-03-07 04:02
Probably, despite the confusing ruling the IRS made with PLR 2007 20023, which busted a plan due to a partial transfer. Prior to that the conventional thinking and assumption was that a tranfer to a newly created -0- balance IRA would not be a problem. The IRS has still not rationally explained that ruling, and there is no evidence that they have busted any of the other thousands of plans that made partial transfers over the last few years. It is not clear whether their thinking would have been different if the transfer were between SEPP IRA accounts in the original plan. However, I would still factor in the possibility of a problem with a risk-reward analysis. What really is to be gained from this transfer?
Any risk of a problem is further limited by doing a transfer instead of a rollover, since these should not even be reported on a 1099R in the first place. Note that if the exception coding appears now on the 1099R, this is quite likely to end that coding, triggering a need to file the 5329 to claim the exception.
Permalink Submitted by Sandy Richardson on Mon, 2008-03-10 19:26
I have the same question. The majority of my investments are in an IRA with one financial institution but I have two credit unions with CDs earning above market rates. I want to include the IRAs from all three financial institutions in my “Sepp Universe” to maximize my distribution calculation. I will only take the SEPP withdrawls from the one financial institution where most of my funds are located. However, when the credit union CDs mature, I would like to do an asset transfer of those funds to the financial institution IRA where I am making my withdrawls. Will this “bust” my plan?
Furthermore, if my credit unions offer exceptional rates in the future, I’d like to be able to do an asset transfer to new CD IRAs with them. Would this also “bust” my plan?
Permalink Submitted by Alan Spross on Mon, 2008-03-10 19:53
These transfers should not bust the plan, however, there remains some uncertainty about partial transfers of accounts that are part of the original “SEPP universe” due to PLR 2007 20023 issued by the IRS last year. In that ruling, a plan was busted after doing a transfer to a new IRA account, but the IRS has yet to release a logical explanation for the ruling.
The good news is that there has been no follow up activity with respect to the thousands of taxpayers that have done such transfers or even rollovers using the prevailing thinking that it was allowed, as long as the transfer was to a new IRA account or to another account already part of the SEPP universe. Since there is apparently some risk involved, until this ruling is clarified, it is best not to do transfers unless the expected benefits are worth the added uncertainty.
Obviously, the more transfer activity and the more actual accounts reside in the plan, the greater the risk of actually making a mistake in execution that would definitely bust the plan. So be very careful about the transfers you do in you proceed, and also plan to clearly document all the assumptions made in your original plan calculation, especially the accounts that composed the account balance.