60-Day Roll-Over on Traditional IRA with SEPP withdrawals

Submitted by Michael Bassitt on Tue, 2017-02-28 15:59

I would like to take a 60-day roll-over from a traditional IRA that already has SEPP withdrawals initiated. I am 56 and began SEPP payments 2 years ago. SEPP payments are automatically taken each month, so the exact amount is ensured each year. I will be using the 60-day roll-over funds for the purchase of house and will repay the exact amount of the withdrawal within 60 days. I have not taken a 60-day roll-over on this account in the last 12 months. I have seen similar posts on this topic. Specific questions include:

1. Can this 60-day roll-over be taken and repaid in full without penalty?

2. Do I need to take a full years worth of my SEPP payments before I initiate this 60-day roll-over? If so, I would stop the monthly payments and take one lump sum for the remainder of the required SEPP for the year — then restart the monthly payments next year.



Submitted by Alan - IRA critic on Tue, 2017-02-28 17:17

  • Yes, you could take a distribution and roll it back, but your 1099R amount will be higher than your SEPP calculation. That might attract IRS attention as a red flag. Further, the one rollover rule applies for ALL your IRAs in total if you have more than one. It no longer applies per IRA account. There is no penalty to roll the distribution back within 60 days, but anytime a real estate transaction is involved, the risk of delay and failing to meet the 60 day requirement is considerable.
  • You don’t have to complete all the monthly payments first. The rule is that you cannot rollover a SEPP distribution. However, a SEPP distribution is considered to be the annual amount required to be distributed, so if you take out more in a year than the SEPP calculation, the additional amount is NOT a SEPP distribution and can therefore be rolled back. You can also do such a rollover if you take out too much by mistake and correct the error within 60 days to reduce the total distribution to the correct amount. That said, IRS opinions about SEPPs can differ between examiners, so your idea of completing the SEPP distribution entirely before taking out the additional amount would probably reduce the risk of IRS problems somewhat.
  • I certainly do not recommend this move, but it should be OK in the end. You might get some IRS questions though. Normally, with a SEPP you want to attract as little attention from the IRS as possible.


Submitted by Michael Bassitt on Tue, 2017-02-28 17:39

Thank you for the quick reply.  In a similar post in 2014, the following comment in italics was made regarding timing of distributions.  Can you clarify how this affects the timing of the regular, current monthly SEPP for the remainder of 2016?“Remember, you should not take your extra distribution until you have completed the 72t obligation for this year. Fortuneately, year end is near. Doing this after the first of the year would require you to complete your 2015 72t distribution entirely and then take out the additional amount. There is nothing in the tax code that refutes this treatment.”



Submitted by Alan - IRA critic on Tue, 2017-02-28 19:10

You mean 2017?  I don’t agree with this quote, but not sure what context applied to it. SEPP distributions are NOT like RMDs under which the first distributions in a year are deemed to be RMDs. The IRS should only care about the final 1099R being the same after any rollover done as the SEPP calculation. Distribution pattern within the year does not matter.  The following is copied from an article by Bill Stecker, a recogized authority on SEPPs. The article was written before the recent change to the one rollover rule:

ROLLOVERS (iii) a rollover by the taxpayer of the amount received resulting in such amount not being taxable.Well of course, the purpose of doing a rollover is so that it is not taxable.  In this case, however, the IRS is talking about attempted rollovers of the distribution dollars as opposed to rolling over all or portion of the corpus of an IRA.  Rollovers of required minimum distributions have long been disallowed pursuant to IRC §401(a)(9) & related regulations; otherwise everyone’s grandmother would make their RMDs and then immediately roll them over into an IRA thus perpetuating an IRA account forever.  The same applies here.  One of the other asset preservation strategies suggested was for John to run the SEPP distribution dollars in a circle.  John was taking one annual distribution of $60,000 per year from his original IRA of $700,000; now down to $200,000.  Further, John realized the impractability of his situation and re-entered the employed workforce; thus, John no longer wanted or needed the $60,000 per year distribution.  John though why not just rollover the $60,000 distribution into the same or other IRA thus erasing the taxable event and preserving his IRA assets.  Again, the Service has said NO.



Submitted by David Mertz on Tue, 2017-02-28 19:58

Alan, you are the one being quoted:  https://irahelp.com/forum-post/23671-60-day-rollover-72t-sepp



Submitted by Michael Bassitt on Wed, 2017-03-01 03:05

Apologies for not providing the full context of the quote!  Thanks to DMx for clarifying.



Submitted by Alan - IRA critic on Wed, 2017-03-01 04:04

  • To reconcile the difference, we are dealing with an area in which the IRS has issued very limited regulations. Therefore, compliance is more or less driven by a combination of RR 2002-62 and IRS letter rulings and action. Further, many of the letter rulings conflict with earlier rulings. Therefore, we are all just guessing on certain issues with respect to their audit potential. The IRS has never defined what is a SEPP distribution and what isn’t with respect to each individual distribution. They look at the year end result, ie the 1099R.
  • My current post here is correct regarding there being nothing in the tax code that requires the annual SEPP distribution to be completed before doing a rollover. However, I would guess that completing them does not affect the risk of audit, but probably reduces the chance of a negative result somewhat, perhaps something like 5% to 3% to put a totally arbitrary number on it. I also had not read Stecker’s article before the 2014 post. This question had never arisen at the 72onthenetsite either.
  • To summarize, the IRS only looks at the 1099R issued every year. Doing this rollover itself may attract attention from the IRS due to the higher 1099R amount, perhaps a 5% chance of an inquiry. If there is an inquiry you should be OK with a slightly better chance of not having a negative decision if you complete the SEPPs first than if you don’t.


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