72(t) distribution – multiple IRAs

Submitted by ShipsnGiggles on Thu, 2012-12-20 21:53

Good Afternoon –
I finished reviewing the numerous posts covering 72(t) rules. Unfotunately I am still looking for clarity regarding among other things using multiple IRAs affects 72(t) calculation.

FACT PATTERN:

IRA account owner,55,has two separate IRAs held at different institutions.
72(t) calculation was performed(unsure which method was used)using her total account value from the two IRAs equaling $21,000 annually. Account owner opted for monthly payments of $1,750 all being taken from IRA #1
$25,000 distribution was taken from IRA #1 prior to starting the SOSEPP but was inclded as part of the total value determing the SEPP payments.

QUESTIONS:
Would a withdrawal from IRA #2 be considered a modification?
What if any issues are there using $25k as part of the acccount value determing the SEPP and subsequently taking a withdrawal (prior to the first payment)?
Can the account trustee transfer the IRA #2 assets to IRA #1 streamling the SEPP
Does IRA #1 being an annuity have any bearing on the scenario?

Is it true the Annuitization method always results in the hightest payment?

Thank you,
Brian



Submitted by Alan - IRA critic on Thu, 2012-12-20 23:42

  • The last sentence in the fact pattern would be a modification of the SEPP since the total value on which a SEPP calculation is based cannot include a distribution that is not part of the plan. That said, there may be a way to salvage the plan IF the 25,000 is included in the SEPP distribution and the plan deemed to begin with that distribution. That would also require that the interest rate used not exceed the maximum rate allowed for the month the 25,000 was distributed. There is no problem aggregating a SEPP over two different IRA accounts as long as it done correctly.

Question Reponse:

  • Q1 A withdrawal from IRA 2 would be allowed if it not exceed the annual SEPP calculation including those from IRA 1
  • Q2 Big problem as explained above.
  • Q3 Direct non reportable transfers between two IRAs used in a single SEPP plan can be made 
  • Q4 One IRA can be an annuity (not annuitized), and the other a non annuity IRA, in fact this set up occurs frequently, but usually the distributions are limited to the non annuity IRA.
  • The amortization method provides the highest payout by a very slim margin over the annuitization method. Both these “fixed dollar” methods produce a far higher payment than the RMD method.


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