SEPP from 401(k)
Client has SEPP distributions coming from his 401(k). Are there any issues with rolling over to an IRA as long as the payments continue without modification?
Client has SEPP distributions coming from his 401(k). Are there any issues with rolling over to an IRA as long as the payments continue without modification?
Permalink Submitted by Alan - IRA critic on Mon, 2024-04-08 20:26
Yes, that would bust the plan. Notice 2022-6 states (as has prior guidance) that any transfer to another retirement plan is deemed to be a modification of the 72t plan. “Another retirement plan” is considered to be another type of retirement plan such as 401k to IRA. Non reportable transfers between IRA accounts will not bust a 72t plan started from another IRA.
It is more risky to set up a 72t plan from a 401k, because the participant has less control of the 401k than they do with an IRA, and there is less plan support. Client should therefore hold off on any 401k rollover until the 72t distributions have been completed, or if they have just started perhaps the plan should be busted by the IRA rollover and a new plan started from the IRA.
Permalink Submitted by Sten Lindquist on Tue, 2024-04-09 13:55
Did Section 323 of SECURE Act 2.0 change that?
Permalink Submitted by Alan - IRA critic on Tue, 2024-04-09 14:52
Probably not, since 323 only allows an employer 72t plan (401k) to continue after a rollover to another qualified plan. Technically, an IRA is a personal retirement plan and is not treated as a qualified plan, even though an IRA for some purposes is lumped in to the qualified plan category. Unfortunately, the IRS has not defined “qualified plan” for purposes of Sec 323, and we know that one of the main themes of the entire Sec 2.0 Act is to enhance the advantage of true employer plans over IRAs. Therefore, unless the IRS provides clear guidance on Sec 323 that includes IRA accounts as permitted transfer accounts (treats them as qualified plans I would not bank on IRAs being treated as qualified plans for purposes of Sec 323. Since 323 is recently effective 1/1/2024, perhaps the IRS will soon provide clarification of IRA status under 323.